Inheritance tax warning: Giving your house to children? Important rules you must follow

Inheritance tax explained by Interactive Investor expert

We use your sign-up to provide content in ways you’ve consented to and to improve our understanding of you. This may include adverts from us and 3rd parties based on our understanding. You can unsubscribe at any time. More info

This can be achieved by either purchasing property for them or by gifting currently owned property, which could be buy-to-let property or even the family home. There’s more than one reason why gifting property to children through a Deed of Gift may be an option to consider.

A Deed of Gift, sometimes referred to as a transfer by way of gift, is a legal process by which a person or persons can be added to the title of a property.

This means that no form of payment is made, whether by money, transfer of assets, assumption of debt or in exchange for services.

The primary reason for this is that a Deed of Gift can reduce inheritance tax liabilities.

A Deed of Gift is different from a transfer of equity where at least one of the owners remains on the title or an assent, where the ownership of property from the estate of someone who has died is transferred into the new owner’s name.

If a debt is secured on the property, it must usually be repaid before the property can be gifted.

If a person passes their home to their husband, wife or civil partner when they die, there’s no inheritance tax to pay.

If they leave the home to another person in their will, it counts towards the value of the estate.

If a person owns their home (or a share in it), their tax-free threshold can increase from £325,000 to £500,000 if they leave it to their children (including adopted, foster or stepchildren) or grandchildren.

It also increases if their estate is worth less than £2 million.

For a person who is planning to give away their home to their children, there’s normally no inheritance tax to pay if they move out and live for another seven years.

However, if they want to continue living in the property even after giving it away, they’ll need to pay rent to the new owner at the going rate (for similar local rental properties).

They will also need to pay their share of the bills or live there for at least seven years.

People do not need to pay rent to the new owners if they only gave away part of their property and the new owners continue to live at the property.

If a person dies within seven years of giving away all or part of their property, their home will be treated as a gift and the seven year rule will apply in this case.

Subject to checks, a transfer of registered title form (TR1) must be completed, signed and witnessed in order to transfer property to children.

An application, using Form AP1, must be made to the Land Registry in order to register the transfer.

What is happening where you live? Find out by adding your postcode or visit InYourArea

The name(s) in the Proprietorship Register will then be changed to the new owner(s).

On the other hand, parents can also gift property to their children by creating a Life Interest Trust Will.

Under this type of will, both parents will hold a separate share (usually 50 percent) in the property.

If the spouse were to pass away, under a Life Interest Trust Will, their half would be placed in the trust which indefinitely secures the property for their children.

Source: Read Full Article