Inheritance Tax Trap
As recently reported in the Telegraph, parents transferred a house into a Trust for their son. They understood that it would be exempt from Inheritance Tax.
They now find out that it’s not. The result is that they have to either pay rent of £100,000 per annum until they both die or leave a £6M Inheritance Tax bill for their son.
The amounts involved in this case are high but the same rule affects many people.
If you have gifted property – or part of a property – to children or are thinking about doing so why not take this simple test to see if you are creating a problem rather than solving a problem.
Are you paying rent? (Yes/No)
Is it full market rent? (Yes/No)
Are you reviewing the rent annually? (Yes/No)
Will you pay the rent as long as you live? – Not just 7 years? (Yes/No)
Are your children paying income tax on the rent they receive? (Yes/No)
Are your children happy to pay Capital Gains Tax when the property is sold? (Yes/No)
If the answer to any of the above is NO then contact us to see if we can fix it. We probably can.
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