Planning is key to minimise inheritance tax
QWE’RE both in our late sixties and although in good health, we realise we all have to go some time. We own our home, worth around £600,000, and with savings we have around £1m in total. We realise our three children and five grandchildren would have to pay quite a bit in inheritance tax after our death. As the bulk of our money is the value of our home, would the simplest solution be to give the children our property? Jessica H
AIT MAKES sense to do some planning to minimise inheritance tax, which could be as much as 40%. The reality is very few people actually pay it. Around 27,000 estates had a tax bill last tax year – just 5% of all deaths.
Assuming you’re a married couple or in a civil partnership, your fears of a large inheritance tax bill may be unfounded.
Each person can pass on £325,000 free of inheritance tax.
Married couples and civil partners inherit their spouse’s assets tax-free, as well as their unused inheritance tax allowance (providing the first to die didn’t use any of it by giving money away). So, a married couple can pass on £650,000 before inheritance tax is payable.
But if your estate includes your property, you can pass on an additional £150,000 per person, meaning a married couple could pass on £950,000 this year, provided the property is going to their children or grandchildren. By 2020, this will rise to £1m.
Anything you give to children, grandchildren or others has to be a genuine gift and you have to live at least seven years afterwards for it to escape inheritance tax. This means you cannot have it back or use it once it has been given. This also applies to your home.
But what you can’t do is continue living there free of charge. You could stay there if you paid a genuine rent, in line with those for similar properties in your locality, but this would mean your children become your landlords and would have to account for each of their shares of the rent received for income tax purposes. If they sold the home, they could be liable for capital gains tax levied on second homes, which would be charged at 18% or 28% depending on their own personal tax rate.
Send your question to
IN ASSOCIATION WITH