Inheritance Tax: Thinking of giving your house to your children? Read this first

gifting a house

gifting a house or assetsInheritance Tax is a worry for many people – why would you want to work all of your life just for your hard earned assets to be taxed by the government on your death?

If you give assets to loved ones, will they be taxed?

You may think a way around paying insurance tax is to give your assets to your loved ones, most likely to your children, during your lifetime.

Caution should however be exercised here. If you give an asset away but do not survive for 7 years, the tax man can look back and take this into account when valuing your estate for Inheritance Tax purposes, albeit the rate of tax tapers down the longer you have survived after making the gift.

There is a risk, if you give away assets valued at more than your Inheritance Tax Nil-Rate Band (currently £325,000) in the 7 years prior to your death, that tax will be payable on those gifts on your death. Potentially the recipients of the assets will be faced with a very unexpected Inheritance Tax bill to settle personally!

Does your home remain part of your estate if you sign it over but continue to live in it?

A common misconception is that signing over the family home to your children will prevent this from falling within your estate for Inheritance Tax purposes on your death. If you remain living in your home, this is likely to be viewed as a “Gift with Reservation of Benefit” by the tax man and for Inheritance Tax purposes you will be viewed as still owning that property.

What happens if you need residential care?

As a separate concern, if you have given assets away during your lifetime and then require residential care, the Local Authority may refuse to assist you financially or treat you as still owning the assets you have disposed of for the purpose of their financial assessment – the “Deliberate Deprivation of Assets” rules.

What next?

If you are considering making any significant lifetime gifts, legal advice is essential.

If you would like advice on making a Will please contact us.