Playing the house

No, I am not talking about any romantic ideas of putting your house keys on red in Vegas (never a good idea). Rather the idea of giving away your home to your nearest and dearest earlier a few years before Mr G. Reaper pays a visit, in an attempt to remove your home from the claws of Inheritance Tax.

It might sound like a good idea to pass your property to your children whilst you are still living in it. Surely giving the asset away early – at least 7 years prior to death – means that it is outside of your estate when the fateful time comes. The answer unfortunately is probably not!

A rule known as ‘Gift with Reservation of Benefit’ usually puts paid to this type of planning, as whilst you have made a gift of the property, you still retain the benefit of living in it. Therefore, unless you pay a market rent for the use of the property – on which the recipient will pay Income Tax – the property will still fall within your Inheritance Tax estate.

Inheritance Tax exemptions are being introduced to help to combat the likelihood of tax being paid on the value of your home upon death, with these targeted to cover up to £1million of your home value by April 2020 for a married couple or civil partners (currently £850,000), but if you find yourself with your overall estate being worth more than this, there are several more effective alternatives that could be used.

Speak to Janice Offer to arrange a review of your Inheritance Tax position.

Not so charitable 

If you are one of those nice people who decide to contribute to charity, you will probably know that if you contribute using Gift Aid, the charity will reclaim a further 25% from the government. Therefore, if you make a £80 gift through the Gift Aid mechanism, the charity will receive a total of £100. Neat, huh?

You might also know that if you make a charitable donation through Gift Aid and you are a higher rate taxpayer, you will also receive a tax rebate (equivalent to £20 in the above example), so you even get a little reward yourself.

However, what you might not know is that if you tick that little ‘Gift Aid’ box, and your Income Tax bill in that year is less than the amount that the charity will reclaim – perhaps because you have recently sold your business and are living off the proceeds, or your income has simply dropped below the Personal Allowance – the government are not so charitable. They will approach you for the repayment of the Gift Aid that they have paid to the charity on your behalf. The charity won’t lose out but you might.

If you are in this position, you might be in the slightly strange position – from a tax planning point of view anyway – of wanting to increase your taxable income! Speak to Janice in our Tax Planning department to find out more.

Contact us: Call us on 01474 853 856 to speak to one of our Client Managers or Principal Advisers.