Tax Bite – Inheritance Tax Planning for the family home

There are still quite a few opportunities involving inheritance tax planning for the family home. One simple idea involves giving the home away and paying a market rent.

For example:

  1.  Mr. Jones gives £2M house away to his son.
  2. Mr. Jones pays market value rent (taken to be £80,000 per annum) to his son.

Pros

  1.  Inheritance tax of £800,000 saved if Mr. Jones survives 7 years from date of gift.
  2. Rental payments leave Mr. Jones’ estate free from inheritance tax.
  3. Capital growth in home is outside Mr. Jones’ estate.
  4. Life insurance can be taken to cover IHT exposure if Mr. Jones dies within 7 years.

Cons

  1. This is not for everyone as many elderly people are asset rich and cash poor.
  2. Son will pay income tax on the rental income.

Whether this proposal is viable depends on the precise circumstances. We have previously advised on the savings achievable using financial modelling.

 

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