When suffering the loss of a family member or when they become too unwell to take care of themselves, the last thing you need on top of the grief and stress is property IHT. This tax was originally designed to only affect the more wealthy property owners, however with property prices sky rocketing this tax is now affecting the less fortunate as well. There are places online where such matters can be discussed for example a property investment forum such as www.singingpig.co.uk. However your best defence is to have an IHT tax strategy in place, especially when house price in the South East, which can be sold for around £400,000, and property IHT can be charged at 40% on estates worth more than £285,000.
How it affects your family
First thing you should know is that you cannot give away the family home to anyone (including your children) to lower property IHT liabilities while you live on the property. This may be considered a "gift with reservation", and still be subject to property IHT. There are annual exemptions, however. For instance, you are allowed a property IHT -free gift of £3,000 every year. Anything left over can be carried on to the next year. Parents may give wedding gifts to their children up to £5,000 free of property IHT. Grandparents may give up to £2,500. Of course, they must give these gifts before the official wedding date. Small gifts of £250 may be given to anyone in any tax year. Any donation made to a UK established charity, political party, national museum or university is completely exempt from property IHT.
What can be taxed and what can’t
Due to the £263,000 inheritance tax threshold, more people on average incomes are being plagued by inheritance tax. Careful planning must go into decreasing your inheritance tax liability. "Gifting", or the passing of wealth over a lifetime, is your best way of getting around this, but most people need professional advice to know how to use it properly. Many people these days do not know that ISAs (individual savings accounts), which are free from tax in life, may be taxable on death. However, jointly owned property for a married couple is generally exempt as well as pension fund payments. Problems can still ensue, however. Women who are not married but live with a partner and joint-own a property should make certain their name is on the deeds. If they are not and one of them dies, the partner may have a wrangle on their hands. The main way around inheritance tax is making gifts. As long as you make the gift and survive seven years, no IHT needs to be paid on the gift's value.
How to avoid property IHT
The best IHT tax strategy to avoid property IHT is if the individual who survives for at least seven years after the money is given. Then the sum is considered a gift or potentially exempt transfers. Another way to protect the money is if the grandparents open up a trust account where money will be kept until the account matures, usually between the ages of 18-25.
However if the individual gives the gift before the end of the seven year period a special relief known as taper relief may be available which will reduce the amount of property IHT that needs to be paid depending on the size of the gift amount.
Source: http://www.ArticlePros.com/author.php?Julie-Ann Amos
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