Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.
This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice.
Thinking about gifting your home to your children?
For most people, their home is the most valuable asset they have. So it makes sense that many consider gifting their home to their children, either while they are still living or after they have passed.
Gifting a home while you are still alive isn’t as simple as you might think.
There are certain rules you need to follow to ensure you aren’t hit with an unwelcome tax bill.
To avoid any inheritance tax liability, the home must be gifted without strings attached. If you give away the home with any conditions, or you profit from the property in any way, it will be known as a “gift with reservation of benefit” and will still be included in your estate.
These rules aim to prevent individuals from decreasing their IHT responsibility but still benefiting from the assets they gift.
The 7 year rule still applies (+ more rules)
After you give away your home, you won’t need to pay Inheritance Tax as long as you live for another 7 years. This is called a “potentially exempt transfer” (PET.)
You can continue living in your home after gifting it if you contribute financially toward it. This means you must pay rent to the new owner at a standard rate for the area, pay your portion of the bills, and live there for at least 7 years.
However, if you’ve only given away part of the property or the new owners live there as well, you won’t need to pay any rent.
- If you chose not to live in the home, you can still visit (with limitations) without being subject to the above rules.
- You can stay in the home alone for two weeks or less or stay with the new owner less than a month.
- You can of course still make social visits, stay for a short period of time while either you or the new owner is recovering from illness or injury or if your new residence is uninhabitable for some reason, or to babysit your grandchildren.
What if you don’t survive 7 years?
If you unfortunately don’t live for another 7 years after giving away all or part of your home, then it’s classed as a gift and the 7 year rule will apply.
Tax is then paid on a sliding scale called “taper relief” and ranges from 40% if the gift is given within 3 years and decreases 8% each year until 0% is due after 7 years.
Gifting your home is a wonderful way to keep your home in your family, but it can get quite complicated.
Consulting with the experts at Dental and Medical Financial Services will ensure you take the proper steps to avoid unnecessary tax and set your family up for the best future possible.