Many parents think that gifting the house they live in to their children means they won’t pay Inheritance Tax on it when they die.
This is a mistake. If you give your house but continue to live in it, that is a “gift with reservation of benefit” or “GROB” and HMRC still treats it as part of your estate for Inheritance Tax purposes.
In 2019 HMRC taxed the children of such gifts in 440 cases in that year alone and with property prices having increased the Revenue is likely to look at these gifts more closely going forward. Your children could also have to pay Capital Gains Tax on the house when they sell.
Many people are aware that if they make a gift and live for 7 years that asset will not then incur Inheritance Tax but are unaware of the GROB trap. You can avoid the GROB trap by:
- Paying a market rent to the children
- Selling your house, downsizing and giving the surplus proceeds to the children
- Giving a share in your house to a child who lives with you
- Taking out a lifetime mortgage and gifting the cash
Inheritance Tax law is complex and if not followed correctly can leave your estate or beneficiaries facing large Inheritance Tax bills. Our team of solicitors: Penny Smith, Chris Halliwell, Marie Slavov and Lauren Kendell, have many years’ experience between them in working with the Inheritance Tax regime and advising clients. If you are thinking of giving away your home to mitigate Inheritance Tax then one of us will be able to give you full and clear advice before you make your decision.
Please call 01243 377231 for more information or visit our website: www.belcheraddison.co.uk