Taxing times

“The government introduced an additional ‘residence nil-rate band’ (RNRB) allowance in 2017, which is available if you leave your interest in the family home to direct descendants (such as children, stepchildren and/or grandchildren).”

Gifting a property in the UK can be done without paying Inheritance Tax by taking advantage of certain allowances that are available. The key element to gifting property without triggering Inheritance Tax is ensuring that you stay within the Inheritance Tax (IHT) threshold or nil-rate band.

Currently, this stands at £325,000 (tax year 2023/24) for an individual or £650,000 for a married couple or registered civil partnership, and is set to remain at this level until at least 5 April 2028. This allowance hasn’t changed since the tax year 2010/11.

OPTIONS YOU MIGHT CONSIDER

The government introduced an additional ‘residence nil-rate band’ (RNRB) allowance in 2017, which is available if you leave your interest in the family home to direct descendants (such as children, stepchildren and/or grandchildren).

This can apply to any individual property that has been your residence at some time and can be available even if that home had been sold after 7 July 2015. For the 2023/24 tax year, the maximum RNRB additional allowance is £175,000 (frozen at this amount until 5 April 2028), potentially increasing your total Inheritance Tax allowance to £500,000 (£1,000,000 for a married couple). Note that the extra allowance only covers properties that you have lived in and not any other properties such as holiday homes.

PROPERTY NO LONGER PART OF YOUR ESTATE

If your estate’s value exceeds the RNRB, gifting your property to your children could be an option. By transferring ownership and either moving out or paying rent at market value, you could make a Potentially Exempt Transfer (PET). If you survive for at least seven years after making the gift, the property will no longer be part of your estate and won’t attract Inheritance Tax.

However, if you pass away within seven years, the PET will fail and be liable to up to 40% Inheritance Tax if its value exceeds your available nil-rate bands. It is important to seek legal advice before making any decisions and ensure that you are comfortable with the end result.

DON’T WAIT UNTIL IT’S TOO LATE

If you have other assets such as savings and investments, there may be options available to reduce a potential Inheritance Tax liability such as taking out life insurance written in an appropriate trust or setting up a specific trust. Don’t wait until it’s too late.

If you believe you may leave your loved ones with a potential Inheritance Tax liability start planning now to reduce any unexpected surprises and ensure that they receive more of what you want them to have.

Don’t forget, our professional friendly advisers are on hand to support you and can help you explore all of your options.