How to give your home to your children tax free
How to give your home to your children (almost) tax free
Prior Planning is Key
It’s interesting just how many people don’t know the laws around inheritance Tax here in the UK. There have been a lot of recent changes by Former Chancellor of the Exchequer George Osborne.
Osborne used this first conservative budget to benefit all but the very richest householders out of inheritance tax.
This is great news for almost everyone, but even if your estate is over the allowance, there are still many legitimate ways you can be tax efficient with your wealth.
Hang on I hear you say! What is Inheritance Tax all about?
In a nutshell, this is tax paid on the assets by the executors (after allowances deducted) which are left behind by the person who passes on.
What does the calculation look like?
When a person passes on, they government will calculate how much their estate is worth, then deducts any debts from this to value the estate.
Examples of Assets taken into account:
- Cash in the Bank
- Investments (Including Stocks, Premium Bonds etc.)
- Business(es) which the person owned
- Vehicles (Cars, Yachts, Jets etc.)
When you add this all up, the executors of the estate will owe 40% (36% if you leave 10% to charity) on anything more then £325k (which is the current threshold) when the person passes on.
Planning ahead is one of the best things you can do to save your future generations potentially hundreds of thousands of pounds. So the lesson here is don’t put this off, just because it seems like “Tempting Fate”
“Rich People plan for three generations
Poor people plan for Saturday night”
? Gloria Steinem
Homes upto £1,000,000 (1 million GBP) have inheritance tax scrapped by April 2020
As we mentioned above, in the July 2015 Summer Budget, George Osborned unveiled plans to scrap IHT when parents or grandparents leave a home behind worth upto 1million GBP. This is being gradually rolled out, and will reach the full allowance by tax year 2020/21
You may wonder what the purpose of IHT is?
The whole idea is based around the philosophy that if recurring wealth is continued to be passed down, the children of the rich will stay rich. Rather the money should be redistributed for the benefit of others. There is ofcouse the very valid argument, that you have already paid tax on this once, and therefore, should not have to pay again.
What if you know your estate will be worth more the 1mill GBP by the time you pass on?
Again – advance planning will save £££ in the future. Money given as a gift, will not be counted within inheritance tax, as long as the person that passes on does not do so within seven years of making the gift! (Perhaps time to switch to a better diet and exercise regime!)
How else can I save on the IHT Bill?
Children getting married? You can give away £5k tax free (as long as it’s from a parent) Grandparents and anyone else, the amounts vary. In addition to that, you are able to give away £250 to everyone you know. This will also be deducted from the final bill. In general, gifts to charity and political parties are tax free.
So, advance planning is essential. Get Planning! The next generation will really thank you for it.