The inheritance tax (IHT) nil-rate band of £325,000 has been fixed for two years, while house prices are “edging up” again, says Tax Tips & Advice. This is increasing the potential IHT bill for the many people whose main asset is their home.
You could move to a cheaper house and give the excess capital away (the gift will be tax-free provided you survive seven years), but a more suitable option – given that many elderly people don’t wish to leave their home and can’t afford to give away their savings – is to give a joint share of the property to a child who then moves in.
Take Peter’s widowed mother, Jane, 75, who lives in a house worth £595,000. She can give a joint share of her home to Peter – “no more than 80% is recommended” – and he and his family could then share it with her. Provided she continues to live there and pays her share of running costs, HM Revenue and Customs will accept that she has given away 80% of the property value, meaning that no IHT would be payable.
If the property isn’t suitable, Peter could either use funds from selling his house to create an annexe for his mother; or he and his mother could jointly buy a new house, with Jane providing most of the purchase price.