WESTCOLT SURVEYORS GUIDE – TAX SAVING TIPS WHEN GIFTING YOUR PROPERTY TO YOUR CHILDREN
If you have been thinking about estate planning, and perhaps leaving your properties to your children in the most efficient, tax-saving manner, then you’re not alone! As house prices rocket, especially in England’s Capital, the value of people’s net wealth is increasing, which obviously affects the liability for our children when it comes to inheritance tax.
Each taxpayer is entitled to pass on up to £325,000 of assets before paying inheritance tax. This is not a huge amount in today’s economy, and any assets over this amount are subject to an extortionate 40% IHT charge on death!
So, when it comes to property, what are your options now for passing property on to your children?
Gifting your property
A very popular option is to gift your properties to your children, now. This will mean that the value of your estate is reduced significantly, and would save on IHT at a later date. There are some terms to consider with this option, though:
Gifted properties must be outright effective. This means that the person gifting the property will give up any right to receive rental income or shares in any income from the property.
The gifted properties must be evidenced in writing and your entry with the Land Registry must be changed.
Your gifted property will incur capital gains tax (CGT).
If you die within 7 years after officially gifting the property, the property could then potentially fall back within your estate and be liable for inheritance tax.
Part-gifting your property
This is an alternative option to outright gifting of the property, and essentially means that you would be giving away just part of the property instead. As detailed in our first option above, the gifted part of the property would come off the value of your estate, but the part of the property not gifted would remain. Each year, more and more of the property could be gifted to your children if you wish to do so, and this would reduce any capital gains tax that you are liable for. You would also be able to still earn a part income from any rent paid for the property.
The third option would be to release equity from the property by taking out a mortgage, and gifting the cash that is generated from doing so. This will mean that any CGT charge is avoided, but if you were to die within 7 years as with the first option, this gift would fall back within your estate and be liable to IHT.
If you’re interested in learning more about gifting your London property to your children for tax saving purposes, please don’t hesitate to get in touch with the team at Westcolt Surveyors who will be delighted to help you further.