Mint it like the Milibands

The Milibands have learned how to climb the property ladder. Lucy Tobin looks at their formula for success
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With lending scarce, getting children on to the property ladder is becoming a family affair. Clever parents with a well-prepared strategy and the advice of good lawyers can legitimately pass down profit from their own properties to help their offspring buy a home of their own, instilling in them as they do a knowledge of how to make a mint in the market.

The Miliband family are a lesson to us all in how to make the market work for your children. "Doing a Miliband" will surely pass into folklore as the savviest of steps up the ladder towards a small fortune...

But beware! This is not for the faint-hearted. While Ed Miliband had not conducted his property dealings to cut his tax bill, financial experts point out tax avoidance is the key to success - but requires delicate negotiations within families over inheritance plans so that children can benefit from the maximum tax-free sum from their parents' home. As for the children, marriage must be resisted and there must be a positively military study of the manoeuvres required when a legacy is invested.

Faultless moves by the new leader of the Labour Party have helped him to make an estimated £100,000-plus profit from property, paving his way to an impressive home in a sought-after location in north London, now believed to be worth £1.6 million.

Ed Miliband and Justine Thornton
© Jeremy Selwyn
Ed Miliband and Justine Thornton have done well in their property manoeuvres, and they now share a £1.6 million home

THE MILIBAND WAY


Step one: Visit the bank of Mum and Dad


Chat with your parents or other relatives who might want you to inherit their property after death. The first £325,000 of an estate is tax-free, but inheritance tax (IHT) then kicks in at 40 per cent. However, since anything left to a spouse is also tax-free, Arabella Saker, partner at wealth management law firm Maurice Turnor Gardner, says it's crucial to avoid the common mistake of leaving money or property in that first £325,000 to a spouse. "If the house, or a stake in a house, is instead given to children or other beneficiaries, it's tax-free," she explains.

If it's too late for that, consider a "deed of variation", a way of changing the gifts made by a deceased person within two years of death, as long as all the beneficiaries of a will agree. It means that on the death of the surviving spouse, only their part of the house will be taxable.

"Assuming that no inheritance tax gifts were made during their lifetime, so the full whack of nil-rate band was available, this will cut IHT bills since it's only paid on property that the deceased owned," explains Alastair Wilson, tax lawyer at City firm GSC. A deed of variation must be done through a solicitor but could cost as little as £200.

Step two: invest well


Consider the best investment for your inheritance. Become obsessive in your study of your chosen area and watch the market. The Miliband boys had the advantage of a nearby property ready to transform. Their mother had bought their grandmother a house in Chalcot Square in 1981. Older brother David turned the first-floor flats into one home while Ed is said to have spent £100,000 on the leasehold of the flat above.

If you move in while doing up a house, you can sell it on without paying capital gains tax (CGT). But if it's not your main home, you'll have to stump up 28 per cent CGT on its sale. If you have judged the market well, sit tight and watch your investment soar.

If anyone gifts you a property while they're alive, and they go on to live for at least seven years, you can also avoid inheritance tax, advises Paul Corren, partner at private-client specialist law firm Corren Troen. "This kind of gift is known as a 'Potentially Exempt Transfer' and will escape IHT," he says. "But if they die before seven years pass, then IHT has to be paid on a sliding scale."

Siblings must decided how they are to split an inherited property to the best advantage. David Miliband bought out his family's stake in the home they owned in Edis Street, moving in with his wife, Louise Shackelton. Ed is thought to have received at least £160,000 from the arrangement, on which he paid a significant amount of capital gains tax. With that money in hand, he then sold his Chalcot Square flat in May 2005 for £342,000 - about three times what he had paid for it.

Combining his growing fortune, Ed then bought a flat in neighbouring Chalcot Road for £648,500, which he sold for £740,000 three years later, scooping a further profit of nearly £100,000. By then he had moved in with his girlfriend Justine Thornton. She had sold her flat in Maida Vale, west London for £630,000 making her a profit of £274,000 in less than a decade.

Step three: say ‘I don’t’


However much you love your partner do not get married. Both you and they can own a property and, if each is a main home, both can be legitimately sold without either of you paying CGT before you move in together. "Even if you own a main home yourself but then move in with a partner, you can still claim a bit of CGT tax relief on its sale, you just have to apportion it for the time you lived there and work out the market prices at the time," Saker explains.

Ed and his partner moved into a prime-location £1.6 million home in Dartmouth Park near Hampstead Heath. Ed's name does not appear on the title deeds to the handsome four-bedroom Victorian property that Miss Thornton bought in July 2009.

Friends of the Milibands say that Ed contributes to the mortgage but Miss Thornton is sole owner because she managed to sell her previous flat and get a new mortgage before he did.

Because they are unmarried each might be able to nominate different properties as their "primary residence" and so legitimately avoid CGT if one of them sold. In the Milibands' case, a spokesman said they had no intention of doing so.

Step four: act fast


Government tax experts, grappling for new revenue-raising ideas, may soon close some forms of tax exemption or broaden tax bands.

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