Question
I am 60, divorced and own my home with no mortgage. I have 2 children in their 20's. My house has a value of £325,000. If I was to change the title deeds in favour of my children and survive 7 years from the date of transfer would I be liable for IHT. Would I have to pay market rental to them during and after the 7 years until I die?Answer
Inheritance tax (IHT) applies to the total value of your estate at the time of death which exceeds the prevailing nil rate band - currently frozen at £325,000 until at least April 2018.
The key exception is when leaving assets to a spouse/civil partner, in which case the assets are exempt from the tax. Any unused nil rate band can also be passed to a spouse/civil partner. However, if the assets remain in a spouse/civil partner's estate this might simply defer an inevitable IHT bill until their death.
Generally the only way to get assets out of your estate is to give them away which, with a few exceptions (such as giving to charity and small annual allowances), means having to live for at least seven years after making the gift before it's deemed to be outside of your estate. Furthermore, you're not allowed to retain an interest in, or use of, the asset once given away unless you pay market value for its use.
Bringing all this back to your question. If you give away your home to your children and live for at least 7 years thereafter then it will be deemed to have fallen outside of your estate. However, if you continue to live in the property you'll need to pay your children market rent or HMRC may effectively void the gift for inheritance tax purposes.
If you die within 7 years then any IHT due on gifts (because they're still in your estate) may be reduced via taper relief. However, as any gifts made are assumed to use the nil rate band (in chronological order) before other assets on death this really doesn't help unless total gifts exceed the nil rate band.
Assuming the property is outside of your estate when you die and your remaining net assets (that comprise your estate) are lower than the nil rate band at that date then yes, there should be no IHT to pay.
I am 60, divorced and own my home with no mortgage. I have 2 children in their 20's. My house has a value of £325,000. If I was to change the title deeds in favour of my children and survive 7 years from the date of transfer would I be liable for IHT. Would I have to pay market rental to them during and after the 7 years until I die?Answer
Inheritance tax (IHT) applies to the total value of your estate at the time of death which exceeds the prevailing nil rate band - currently frozen at £325,000 until at least April 2018.
The key exception is when leaving assets to a spouse/civil partner, in which case the assets are exempt from the tax. Any unused nil rate band can also be passed to a spouse/civil partner. However, if the assets remain in a spouse/civil partner's estate this might simply defer an inevitable IHT bill until their death.
Generally the only way to get assets out of your estate is to give them away which, with a few exceptions (such as giving to charity and small annual allowances), means having to live for at least seven years after making the gift before it's deemed to be outside of your estate. Furthermore, you're not allowed to retain an interest in, or use of, the asset once given away unless you pay market value for its use.
Bringing all this back to your question. If you give away your home to your children and live for at least 7 years thereafter then it will be deemed to have fallen outside of your estate. However, if you continue to live in the property you'll need to pay your children market rent or HMRC may effectively void the gift for inheritance tax purposes.
If you die within 7 years then any IHT due on gifts (because they're still in your estate) may be reduced via taper relief. However, as any gifts made are assumed to use the nil rate band (in chronological order) before other assets on death this really doesn't help unless total gifts exceed the nil rate band.
Assuming the property is outside of your estate when you die and your remaining net assets (that comprise your estate) are lower than the nil rate band at that date then yes, there should be no IHT to pay.
Read this Q and A at http://www.candidmoney.com/askjustin/864/iht-position-if-i-give-home-to-my-children
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