I often get contacted by potential new clients who would like to gift their home to the kids so that they can avoid inheritance tax. This can be a BAD idea and often is done in such a way that it doesn’t actually achieve what they want to anyway.
Here is what you need to know:
- A couple will be allowed (by 2020/21) up to £1m of allowance to shelter their main residence from inheritance tax. There are a few hoops to jump through, but this means that most people will not have to pay inheritance tax on their main home anyway on their death. After all, the average house price is £232,554 currently.
- Inheritance tax is 40%
- Normally if you make a gift (e.g. cash or a property) and you survive for 7 years then the gift is not subject to inheritance tax
- If you gift your house to your children and then continue to live there, the house will still be subject to inheritance tax unless you pay your kids market rent.
- If you do not pay the market rent, the gift becomes a gift with reservation
The tax man has cashed in on £261m from failed gifts in the last two tax years. A whopping 840 people were affected! If you (or your parents) are worried about inheritance tax it is important that you get a well-qualified adviser to help you as mistakes can be costly. You might want to look out for an adviser that is STEP qualified. This is a qualification for estate planning.
I hope this whistle stop tour is helpful. Any questions please get in touch.
Lots of Love
Miss Lolly xx