Inheritance Tax: Can You Gift Your Home To Your Children
And continue to live there?
POSTED BY HELEN BEAUMONT ON 04/05/2018 @ 8:00AM
For most people, the family home is their most valuable asset. With the increases in house prices, it is very easy to see why more estates are exceeding the Inheritance Tax threshold ...
Considering gifting your home to your children? Think about the Inheritance Tax!
copyright: solerf / 123rf stock photo (licensee)
This is a question that I get asked frequently, "Can I gift my home to my children and avoid paying Inheritance Tax?" Unfortunately, this question cannot be answered simply.
"Though you may be able to reduce your IHT bill significantly!"
If your estate is worth more than £325,000 (or £650,000 for married couples) you’ll need to plan very carefully to avoid a 40% inheritance tax (IHT) bill when you die.
The great news is that if you live for another seven years, it is possible the gift will be removed from your estate so Inheritance Tax will not be due. This is called a 'potentially exempt transfer'.
There are some limitations you need to know about.
Gifts with benefits
In order to erase your Inheritance Tax liability, the gift must be made with 'no strings attached'. If it does have conditions attached, or you continue to live there, it will be known as a 'gift with reservation of benefit', and so it still remains in your estate.
Renting it back
You can stay in your home once you've gifted it to your children, however, you have to pay rent at the market rate. Doing this ensures no Inheritance Tax is due on your death, but remember, you must live in it for at least seven more years once you've gifted it.
Your children may have to pay Income Tax on the rent they receive from you. Pay less rent than the market rate, and your home remains in the estate and subject to IHT.
Should your children move in with you once you've gifted it to them, your home remains in your estate but the Inheritance Tax can be minimised in these circumstances.
You could think about giving your children half your home and splitting the bills evenly. The half you give them would not be subject to IHT once the seven-year limit has been reached.
Should you choose to sell your home to your children, make sure it is at market rates. Sell it for less and the remaining value is classed as a gift and subject to Inheritance Tax. An example would be selling a £500,000 house to your children for just £1. The remaining £499,999 may be subject to IHT because it would be treated as a gift.
Remember, if you do gift your home to your children, don't fall out with them as they could potentially evict you. And remember, if they're declared bankrupt, your home could be forcibly sold by creditors.
"Would you like to know more?"
There are many considerations to make regarding Inheritance Tax (and even Capital Gains Tax) when you consider gifting your home to your children. For some expert advice then do call me on 01908 774323 or click here to ping me an email and let's see how I can help you.
Until next time ...
If you're looking to work with an expert tax advisor with a wide range of tax experience, do visit www.essendontax.co.uk to find out more about me and discover how I can help!
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen’s specialist knowledge in tax planning and experience ensures every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.