There is an ongoing inheritance tax discussion going on in a recent Money Saving Experts Forum that reflects discussions our estate planners have on a daily basis. So we asked them clarify the discussion for our readers. This is their response...
As advised in the forum, there are indeed three main reasons why transferring an elderly relative's property to your ownership to avoid inheritance tax is never a good idea.
- Capital Gains Tax may hit you.
- Should your relative have to go into care, means testers will include the value of the property in assessing who pays for what.
- It endangers your relative should you die before them, get divorced (as the value of the property would come into the settlement) or come into financial difficulties in the future.
Inheritance Tax (IHT) planning is a specialism. Whilst we encourage everybody to become more aware of the need to plan for inheritance tax and the issues relating to it — including changes in the law — we do not advise amateur tinkering.
There are ways that a professional estate planner can help you to ensure that any IHT charged on your estate is fair, and enable you to take advantage of the schemes wealthy people have been using for as long as inheritance tax has existed, including Protective Will Property Trusts and Family Asset Trusts.
In the case above, the estate was worth less than the £325,000 IHT threshold.
However, if property prices were to increase or a new government was to lower this band (and none have included such a move in their manifesto), it would be worth the enquirer seeking advice on creating a Trust.
When should I start considering inheritance tax planning?
So, to clarify, current IHT legislation means that you only have you pay inheritance tax on any amount above £325,000 so, when you are aware that your estate is worth that amount or more, you need to start planning.
Doing so is important as, thanks to changes being phased in since April of this year, we are being led towards a situation whereby a couple with a home can pass on up to £1million (and a single person up to £500 K) to direct family members, free of inheritance tax. This could substantially change your family's life for the better.
We advise how to make the most of these changes in our article 7 Must Knows About RNRB Inheritance Tax changes and will continue to report on any other changes to legislation