You are permitted to give your home to your children (or another beneficiary) at any time – even if you live in it.
BUT,
if your home and your estate are worth more than the Inheritance Tax threshold (£325,000 in tax year 2010/11) there will be tax implications.
UNLESS
You live for seven years after you have given your home as an outright gift to your children, irrespective of its value it will be exempt from Inheritance Tax. This is known as a potentially exempt transfer.
BUT
If you give your home to your children with conditions attached to it, or if you continue to benefit from the home yourself, this is known as a ‘gift with reservation of benefit’. In this case, the gift won’t be exempt from Inheritance Tax, even if you live for seven years afterwards.
MAYBE
Instead of gifting the property to your children, you could sell your home and gift them the proceeds from the sale. In this case, the gift won’t be included in your estate for Inheritance Tax purposes, as long as you live for seven years after you make the gift.
BUT
If you sell your home, give the money to your children and then move into their home, there could be Income Tax implications. You may be classed as ‘living in a pre-owned asset’ if you do not pay the market rent.
HOW ABOUT
If you give your home to your children and they then move in with you, the gift will be treated as a ‘gift with reservation of benefit’ and the home will still be subject to Inheritance Tax.
However, if you give half of your home to your children, they move in with you and you share bills jointly, the half that you give them won’t be treated as part of your estate for Inheritance Tax purposes as long as you live for seven years after making the gift.
Inheritance Tax is complex and can benefit from effective tax planning. Henderson Morgan’s wealth management team with our 20 years of experience can work with you and your family to plan your inheritance, contact our team today for a free confidential chat advisor@henderson-morgan.com
