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link to inheritance tax introduction Inheritance Tax Introduction
Avoiding Inheritance Tax
Your House & Inheritance Tax
Exemptions & Allowances
Inheritance Tax & Married Couples
Inheritance Tax & Financial Advice
Life Cover & Inheritance Tax
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Your House & Inheritance Tax

For most of us our house is our largest asset. It poses a dilemma for many couples - how to remove the value from the estate, but allow the surviving spouse to live there.
 
Despite the recent slump, house prices have risen much faster than the Nil Rate Band (see  Exemptions & Allowances). The Nil Rate Band has generally, until recently, only increased at about the same level as inflation, which has meant that more and more of people's money has been subject to Inheritance Tax. The introduction of the transferable nil rate band has helped in some cases.
 
It is not possible to avoid Inheritance Tax by giving your house to your children and then continuing to live there. This would be a "gift with reservations". HMRC would take the view that as you continued to live in the house that it was not really a gift, and it would be liable to Inheritance Tax. If you paid a commercial rent to the new owners, usually your children, Inheritance Tax could be avoided. However, the rent would be taxable as income on the new owners and the property could be subject to capital gains tax on its subsequent sale!
 
In recent years there have been some clever trust schemes, which have enabled people to put their house into trust but continue to live there. This type of scheme proved very popular and successful and was in fact perfectly legal. Unfortunately, in 2004 the Chancellor put an end to this particular use of a trust, by creating an income tax charge in such instances. 
 
There are however some easy steps which can be done to reduce Inheritance Tax. One such method is using a Will Trust and making use of the Nil Rate Band (see Inheritance Tax & Married Couples for a worked example). This works well for couples provided the property is held as "tenants in common" which can be easily arranged.
 

Equity Release and Inheritance Tax

 
It is also possible to use Equity Release to mitigate your Inheritance Tax liability. Equity Release is often thought of as a means to release cash from the value of your property for people who are "asset rich - cash poor." But it can also be used to reduce potential IHT.
 
The cash released can be given away, and after 7 years would fall outside of the estate. It could also be used with other options such as a Discounted Gift Trust (see Avoiding Inheritance Tax), and benefit from an immediate reduction.
 
How successful Equity Release is at saving Inheritance Tax, and being cost effective depends on a number of factors. It depends on how fast the Nil Rate Band increases, it depends on the interest rate of the Equity Release, and it also depends on how much the house increases in value.
 
As Chartered Financial Planners we will only advise you when we have discussed your entire circumstances. We will discuss the advantages of using Equity Release, and its disadvantages. We will also discuss the other options available and help you make an informed choice.
 
Whatever your circumstances we can help you. If you want to know how you can reduce your inheritance tax liability and want to speak to an adviser or arrange a consultation, without cost or obligation, then call us now on 08000 112 034 or contact us online. 
 
 
   
   
   
   
 
 
Rational Finance Ltd is authorised and regulated by the Financial Services Authority under reference 470362.
Registered Office: 137 Goddard Avenue, Swindon, Wiltshire, SN1 4HX. Company Registration Number: 6283642.
The guidance and/ or advice contained in this website is subject to UK regulatory regime and is therefore restricted to consumers based in the UK. Tax rates, thresholds, and allowances quoted may be subject to change.
 

 

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2009