Plan­ning is key to min­imise inheritanc­e tax

Gloucestershire Echo - - CASHING IN -

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.

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