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TAX TIP TUESDAY – Gift your Main Residence for IHT Planning

tax-tip-tuesdayIt’s Tuesday!
The perfect day to talk Tax.

Read this week’s short Tax snippet for doctors, dentists & landlords, to help you save money and get more organised with your tax affairs. It’s just to give you a flavour – in fact, you can read it whilst you drink your morning coffee!

Gift your main residence to save on Inheritance Tax

There are several ways that you can remove your main residence from your estate, which is subject to Inheritance tax (IHT).

  1. Gift the property and then pay rent to live there. The rent will be subject to income tax by the new property owner, however the gifted property can be classed as a Potentially Exempt Transfer (PET) with regards to IHT.
  2. An alternative to the above is to gift the property and move to another rented property. There will be no Capital Gains Tax (CGT) if the gifted property has been the main residence through the duration of the ownership, as long as the gift is made within 18 months of moving. The gift will remain a PET in this instance.
  3. Mortgage the main residence and gift the proceeds. Alternatively, use the proceeds to invest in assets that are not subject to IHT, such as AIM shares. These investments should be 100% exempt from IHT after two years. Mortgage interest will be chargeable in this case.

Family Home Allowance

After April 2017, new legislation will allow the family home to be exempt from Inheritance Tax, up to a certain value, starting with £100,000 in 2017 and building up to £175,000 in 2020.

Those pensioners that choose to downsize their property to growing families, whilst they are still alive, will be able to take advantage of an additional tax credit.

Read more: Inheritance Tax Update


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