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focusPerhaps … or perhaps not! Here is a summary of just some of the implications of giving away a family home.

(*) Was the objective to save Inheritance Tax? Continue living in the property and IHT at 40% could apply under the ‘reservation of benefit’ rules. You could avoid this rule by paying a full market rent, but don’t forget to review the rental amount because, if it falls below the full market rate, then those reservation rules will apply.

(*) Review the cashflow challenges – and have in mind that there is the potential for double tax. You have paid tax on the monies used to pay the rent, and the property owner then pays tax on the monies received.

(*) Generally (excluding the reservation of benefit rules), if you give the house to an individual no IHT is payable provided you survive the date of gift by 7 years. A gift into a trust is different – IHT is potentially payable at 20% on any amount above any unused nil rate band (£325,000 per individual or £650,000 per couple if the property is jointly owned). Oh yes – don’t forget that the trust has ongoing potential IHT charges every 10 years and/or when the property (or its sales proceeds) is distributed to beneficiaries (up to a max 6%).

(*) Have in mind also that if you retain the house in your name, on your death there will be an uplift for Capital Gains Tax, i.e. CGT is effectively eliminated. This exemption does not apply if the property has been gifted.

(*) Trying to dodge the creditors? Remember that the court will set aside the gift if the gift is made within two years of bankruptcy; the gift is made within five years of insolvency; or the gift is made at any time with a ‘material intention’ of putting assets beyond the reach of creditors.

Other options include:

(*) Downsizing – and then gift some of the cash proceeds. No CGT on the sale and IHT can be avoided on the subsequent gift of the sale proceeds (if you survive 7 years, of course).

(*) Give a share of the property to a family member who lives in the property with you … but the ‘reservation of benefits’ rules could apply if they move out at a later date.

In closing, a reminder – the Residence Nil Rate Band (RNRB) came into force on 6 April 2017. The RNRB will be available for residences inherited by direct descendants in addition to the existing nil-rate band (NRB), currently £325,000. The RNRB will be phased in from 2017/18 at £100,000, increasing by £25,000 each year until 2020/21 when it reaches £175,000. As with the NRB, any unused RNRB can be transferred to a surviving spouse or civil partner, with the effect that the maximum combined IHT threshold for such couples will be a total of £1m by 6 April 2020.

We have set out above what is only a brief summary of some points that involve quite complex legislation. Always take relevant professional advice before taking, or omitting to take, any action.

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