Can we give away our home to beat the tax­man?

The Daily Telegraph - Your Money - - MONEY -

My hus­band and I are wor­ried about in­her­i­tance tax (IHT) on our es­tate and are think­ing of giv­ing our home to our chil­dren now. If we are not sell­ing the house but giv­ing it as a gift, will we have to pay any tax? SUE TAY­LOR, VIA EMAIL

It’s no won­der that this is one of the most com­mon ques­tions asked of Tele­graph Money.

Af­ter all, who wants their hard-won money to go to the tax­man when they die? The Rev­enue is rak­ing in more from in­her­i­tance tax than ever be­fore, raising around £5.2bn in the past tax year alone, and last week’s Bud­get pro­jected that those fig­ures would con­tinue to rise. The sky-high value of prop­erty, es­pe­cially in the South East, is push­ing more of us into a tax bracket de­signed for the very rich.

The Sur­rey town of Guild­ford, for ex­am­ple, pays more in in­her­i­tance tax than the whole of Wales and North­ern Ire­land com­bined.

Giv­ing as­sets away is one ap­proach to beat­ing the tax­man. How­ever, the first thing you need to ask your­self is: are you ac­tu­ally li­able to pay?

Tax relief now al­lows each of us to pass on a cer­tain amount free of charge. Ev­ery­one has a per­sonal al­lowance of £325,000, in ad­di­tion to an added tax-free amount of £125,000 called the “fam­ily home al­lowance”.

This ex­tra al­lowance ap­plies if you are pass­ing your main res­i­dence on to di­rect de­scen­dants and in­creases by £25,000 each year un­til it reaches £175,000 in 2020. As a re­sult we will soon be able to pass on £500,000 tax free. Spouses and civil part­ners can dou­ble up their al­lowances, mean­ing that they will be able to pass on £1m by 2020.

Any­thing above your al­lowances will be taxed at a rate of 40pc. If the value of your es­tate is more than the tax-free buf­fer, you can re­duce its over­all size by mak­ing gifts to friends and fam­ily. You can give away as­sets tax free – in­clud­ing your house – if you sur­vive the gift for seven years.

You will pay no IHT if you give away your house, move out and live for a fur­ther seven years. If you die within three years of the gift, full-rate tax will ap­ply. If you die af­ter the third year a taper relief sys­tem takes ef­fect, mean­ing that you will be charged IHT at 32pc. In the fourth year this drops to 24pc, in the fifth to 16pc, in the sixth to 8pc, and af­ter seven years to zero.

Be­ware: if you want to con­tinue to live in the home, you must pay a mar­ket rate of rent to the new owner and pay your share of the bills, as well as sur­vive for seven years, to ben­e­fit from the tax break.

If you do not fol­low these

If you give away your home while you live in it, you must pay rent to the new owners at a mar­ket rate

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.