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Tax Insider Tip: IHT Planning – Gifting The Main Residence

28th Nov 2016
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Suggestions

  • Gift the property and then pay full market rent to live there. The gift will be a potentially exempt transfer (PET) for inheritance tax (IHT) purposes; income tax on the rent will be paid by the donee.
  • Mortgage the house, giving away the proceeds or invest the money in assets that potentially do not attract IHT, for example AIM shares. After two years, the investments should qualify for 100% relief from inheritance tax. However, mortgage interest will be charged. The funds borrowed could be gifted as a PET.
  • Move to a rented property and gift the property. The gift will be a PET. If the gift is made within 18 months of the date of moving no capital gains tax will be charged if the property has been the individual’s only or main residence throughout the period of ownership.

NOTE: Post 6 April 2017, the suggestions given above will need to take into account the new additional ‘nil-rate band’ which will be available should a main residence be passed on death to a direct descendant. The band limit will be £100,000 in 2017/18 increasing to £175,000 in 2020/21.
 
The ‘nil-rate band’ will also be available should an owner downsize or cease to own a main residence and assets of an equivalent value, up to the value of the additional ‘nil-rate band’, are passed on death to direct descendants.

This is a sample tip taken from our 165 page guide:

101 Tax Tips For Landlords 2016/17

101 Tax Tips For Landlords

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