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Guide to Essential Money Tools
Tax Tools
Minimise the IHT bill on your family home
With figures showing a continued rise in house prices, these six tips from Vantis will help you take advantage of existing exemptions and preserve the family home.
- Raise cash using the house as security - Then gift the cash absolutely or to a trust, both options would require the donor to survive seven years.
- Spousal exemption - A more esoteric option is for married couples to utilise the exemptions for couples in the various tax acts. Using this method, a sale of assets takes place and a debt is created between spouses. This is then given away to children or grandchildren. The value of the asset is removed from the estate while the couple retain the benefit of the asset in their lifetime. Stamp duty is payable on the sale of the asset.
- Gifting a property into trust and then paying rent - Gifting a property outright whilst continuing to enjoy the use of it is not possible because of various anti-avoidance provisions. However, a person can still either gift a property outright or into a trust and continue to occupy it provided they pay full commercial rent. In this scenario, there are income tax and capital gains tax liabilities arising, so calculations need to be made to ensure the process is worthwhile.
- Gift followed by lease back - In cases where there is a main residence and substantial cash assets the property can be gifted as above and, after a suitable period of renting, the occupiers can decide to buy the lease to live there for the rest of their lives. The value of the lease must be calculated by actuaries and is either paid to the beneficiaries or into a trust. This provides the opportunity to remove the cash from the estate without the seven year run-off associated with gifts.
- Purchased outright by children - In some cases the beneficiaries of the property, usually the children, are able to buy the property outright subject to the parent’s right to occupy it for the remainder of their lives. Trusts may be used in certain situations to acquire the property from the parents and would have to be considered on a case-by-case basis to ensure that there are also beneficial CGT consequences.
- Cohabitation and co-ownership - A parent can give away as much of the family home as they want provided they co-own and co-habit the property.