You’ve likely spent your whole life paying off your home so finding out your beneficiaries might have to pay 40% tax when they inherit your assets might come as a shock to you.
By planning ahead, you can reduce the amount of tax that your beneficiaries have to pay on your property when you pass away.
Below are some options for you to consider.
Gift your home to your beneficiaries before you die
If you gift assets over the value of your annual allowances, then you have to live for 7 years after making the gift for them to be outside of your estate for Inheritance Tax purposes.
Therefore, most Inheritance Tax planning solutions need to be considered early on to give you more chance of surviving the 7 year period which means that no inheritance tax liability from the gift would be due.
You need to be careful with gifting your house as if you do gift the house to children or grandchildren but continue living in it then you need to pay rent to your child/grandchild monthly (at an open market rate not at a discounted rate). If you do not pay rent then HMRC will still include the house in your estate as you are still benefiting from the house after gifting it.
Gift part of your home
You do not need to gift your entire property, you can also gift a share of it.
Leave your home to your spouse
If you leave your home (or any other assets) to your spouse then there is no inheritance tax to pay. Although it is also important to nominate another beneficiary for your house in your Will in case your partner passes away before you.
Use the residence nil rate band
If you leave your home to a direct descendant such as a child or grandchild then each person gets a residence nil rate band of £175,000. This means a couple get a combined allowance of £350,000.
This is in addition to the nil rate band of £325,000 or £650,000 per couple.
Put your home into a trust
Placing your property into trust can reduce inheritance tax exposure. You can do this while you are alive or through your Will after you pass away. If you do this then the house will be outside of your estate after seven years for inheritance tax purposes but there are various other taxes that you need to be aware of before considering this.
A financial adviser at Four Wealth Management can help you decide if this is the right option for you, Book a no-obligation meeting online or call us on 0117 973 0500.
Take out life insurance
Life insurance can provide your beneficiaries with cash to be able to cover any inheritance tax liability that arises when you pass away. This means that they do not have to rush and sell any assets quickly or for less money than they are worth.
Reduce your inheritance tax liability
By planning ahead, you can make sure that minimal inheritance tax is due when you pass away, and you can then leave more to your loved ones.
The sooner you start to plan then the more options you have available to you.
Book a no-obligation meeting with a financial adviser today or call us on 0117 973 0500.
The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief depends on individual circumstances.
Trusts are not regulated by the Financial Conduct Authority.
