Gifting the family home – Inheritance Tax implications by Alex Chrysostomou
Alexander Associates, your local accountants
24A Aldermans Hill, Palmers Green, London N13 4PN Tel: 020 8882 6611 Fax: 020 8882 6621
One of the most frequent questions we are asked is on advice to help reduce the value of the estate for Inheritance Tax purposes. It is difficult to gift the family home without falling foul of the ‘gift of reservation of benefit’ rule, which could render the move ineffective in helping to reduce the potential Inheritance Tax bill.
There are three potential options available which could be key with your estate planning:
The first option could be to transfer your property to your children and then pay them the market rate rent. After seven years, the gift is likely to fall out of your estate and therefore avoid any Inheritance Tax. This option is usually undesirable because the parents may not be able to pay the market rent (and they probably wouldn’t want to either!) and also the children would need to pay tax on the rent received each year. Usually, this option falls at the first hurdle.
The second option could be to gift a share of the land, say to their children. When a parent gifts a share of the land, say a percentage of the home, this falls out of the ‘gift of reservation of benefit’ criteria and so will help with estate planning. There are certain rules that must be adhered to, for example, there would have to be some form of shared living in the property and the running costs of the property would need to be split according to the ownership of the land.
The third (and little known) option is what’s known as the ‘de minimis benefit’ – where the parent can gift a share in the property, which may be so small that an element of shared living would not be as stringent. For example, staying in the parent’s home, whilst they’re away on holiday would count. There are certain criteria that must be followed, which, if adhered to, would help with their estate planning.
Helping with estate planning is often the most complicated and emotional part of working with clients. We would always advise people to seek assistance from a tax specialist before pursuing any change with the family home.
Disclaimer: The information provided in this article should not be construed as legal advice and the information is offered for information purposes only. You should always seek advice from an appropriately qualified accountant on any specific accountancy enquiry.