Financial Matters

With Akwasi Duodu | akwasi@sterlingandlaw.com | www.sterlingandlaw.com

Can I gift my home to my children to avoid inheritance tax?

Taxed to Death

We spend our lives paying all sorts of taxes. Income tax and national insurance on your earnings, income and capital gains tax on your savings. Stamp duty when you buy your house, council tax to live in it. Car tax, fuel duty, value added tax; excise duty and corporation tax if you run your own business. And after paying all those taxes during your lifetime, you are expected to pay inheritance tax when you die – there is just no escape! None of these taxes are popular, but inheritance tax is without question the most loathed of all. Is it fair to be taxed again on your taxed wealth after your death? Many don’t think it is and believe inheritance tax should be abolished. With house prices having pushed many ordinary people’s estates over the inheritance tax threshold, one of the most common questions I get asked as a financial adviser is “Can I gift my house to my children to avoid inheritance tax?” Yes, it can be done, but it certainly isn’t straightforward. There are pros and cons, and these should be considered carefully before proceeding. If your estate is worth more than £325,000 or £650,000 for married couples, careful planning may be necessary to avoid your children paying 40% inheritance tax on the difference when you die.

Gifting Your Home

Of all your assets, your home is the asset most likely to push you over the inheritance tax threshold. Gifting your home to your children is therefore a natural consideration. The good news is that you could gift your home to your children and if you lived for at least seven years after the gift was made, it would be removed from your estate and no inheritance tax would be due. This arrangement is called a potentially exempt transfer and becomes a fully exempt transfer after seven years. This all sounds simple enough but there are some pitfalls to be aware of. To erase the inheritance tax liability completely, the gift must be made unconditionally. If the parents benefited in any way from the property, the gift would be deemed a “gift with reservation of benefit” or ‘GROB’ and would remain in the estate. This means that if you decided to gift your home to your children but continued to live in the property, the gift would fail. The only way to get around moving out completely would be to rent the property back from your children and pay rent at the market rate. If you paid less than the market rate, the house could remain in your estate and would be subject to inheritance tax. Your children would of course have to pay income tax on the rent received. Alternatively, you could gift half the house to your children and split the bills evenly. This way, their half of the house would not be subject to inheritance tax though the rent would still be taxable. Remember, in both scenarios, you’d have to live for seven years before the gift would be deemed complete.

Selling Your Home Cheaply to Your Children

One alternative would be to sell your home cheaply to your children. The discount on the property would be treated as a gift and would be exempt from inheritance tax after seven years. Bear in mind however, that there would be stamp duty for your children to pay in purchasing the property and you could end up paying capital gains tax if the property wasn’t your main residence.

Equity Release to Reduce Inheritance Tax

Equity release mortgages allow you to release funds from your home. The funds released could be used for a number of reasons. You could spend it yourself or gift it to your children to help them get on the property ladder, for example. Any such gifts would be subject to the seven-year rule after which the gift would fall out of your estate. This method is becoming more popular and is proving quite effecting in inheritance tax planning. Nonetheless, inheritance tax planning is an area riddled with pitfalls, traps and drawbacks. Our advice would be to seek independent financial advice before proceeding. With careful planning, it might just be possible to escape some or all of the most unpopular tax in the country.

MarionColledge

HERBS | NUTRITION | WELLNESS An integrated approach to health and wellbeing with Herbal Medicine, Nutritional Therapy and Massage

1-2-1 CONSULTATIONS

Discussion ofl medical history, lifestyle and diet Discussion of your goals Naturopathic protocol with personalised dietary and lifestyle advice Herbal Medicine prescription Supplement recommendations Further testing if required

WHAT I CAN HELP YOU WITH

HORMONE IMBALANCES PERIMENOPAUSE PMS STRESS AND ANXIETY LOW ENERGY / TIREDNESS DIGESTIVE ISSUES IMMUNE FUNCTION EATING FOR HEALTH AND MUCH MORE

All consultations can be either on zoom or in person at the Honor Oak Wellness Rooms.

Are you ready to take control of your health? FOR MORE INFORMATION PLEASE SEE www.marioncolledge.com Instagram: @herbs _ nutrition _ wellness Now Open!

Portraits Male Grooming

100 Lordship Lane, East Dulwich SE22 8HF 020 3645 7226 | Walk-in Only | @portraitsmalegrooming

St Augustine’s Church

150th Anniversary Spring Fayre 14th May 2022 11am to 3pm Stalls, refreshments & fun for all the family! Honor Oak Park, SE23 3LE

Dulwich Carpet Company

THE IDEAL CHOICE TO HELP YOU FIND YOUR PERFECT CARPET

“I wouldn’t hesitate to recommend Stephen - he has just fitted a new carpet for us upstairs and did an absolutely first-class job. Everything was done to an extremely high standard. He clearly takes great pride in his work, has great attention to quality and detail, and is also fantastic to deal with - super professional, personable and helpful” Alison – East Dulwich

Get In Touch

Call now to arrange your free consultation: 020 8693 8101 07507 407 289 www.dulwichcarpetcompany.co.uk