Inheritance Tax ‘Problem’ to Consider When Leaving Home for a Child | Personal finance | Finance

In the 2020/21 tax year, HMRC received £5.4bn in Inheritance Tax (IHT) receipts, although the tax only affects around 4% of deaths UK. In 2023/24, the amount of inheritance tax collected is expected to be £6.9 billion.

There can often be a lot of confusion surrounding inheritance rights, especially in terms of limitation of liability.

Careful planning could help Britons ensure that the maximum amount of wealth they have worked hard to accumulate throughout their lives can be passed on to the right people.

With that in mind, Tim Latham, Certified Financial Planner at Equilibrium Financial Planning, has answered some of the most frequently asked questions about estate tax.

This includes whether a person must put their house in their child’s name.

“The problem with putting your house in your children’s name is the rules around gifts with reservations,” he said.

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“On 6 April 2017, a zero-rate residency bracket was introduced, which under current legislation allows an additional £175,000, provided residential ownership is left to direct descendants.

“This gives a combined zero-rate allowance of up to £500,000 for individuals and £1million for married couples.

“The zero-rated band of £325,000 per individual has been frozen until 2025/26 and the additional zero-rated band of £175,000 has been frozen for the next five years.”

Mr Latham explained that as house prices and share prices continue to rise, more middle-income families are likely to end up with an IHT bill in the future.

However, Mr Latham explained that a person’s children could still take on a financial burden by doing this.

He continued: ‘Your children may have to pay tax on the rent you pay them, and there may also be capital gains tax payable between the date of the gift and the date of death.

“Depending on the financial situation of your children, there is also a risk that you will lose your home in the event of divorce or bankruptcy.

Will the children pay tax on the money given to them?

“Direct lifetime donations can be made to anyone up to any amount without any immediate tax liability for you or the recipient.

“The key point is that to avoid inheritance tax, you must survive seven years from the date of the gift.”

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