To Inherit or Be Gifted ...that's the question!
Wednesday 17th May 2023
The first commandment for old age is to make sure you have enough income and assets to live comfortably…
Don’t give money and assets to your children without making sure you can afford it.
It is important to think of the worst case scenario. Care costs, either in your home or in a nursing home, are eye-wateringly expensive, and nothing burns through cash like a stint is a dementia care home!
If you are confident, you have those bases covered and still want to try to gift assets to your beneficiaries, then it is a good idea to try to minimise Inheritance Tax (IHT).
Gifting an asset and then living for seven years is clearly the preferable route.
However, HMRC does not exempt anything from IHT if you continue to benefit from it. If gifting your own home, you need to pay a market rent for the benefit of living there, which means you need to have plenty of spare cash or income to pay the rent.
Two good constructive ways to pass funds to the next generation and avoid IHT:
1. Sell your big property and downsize to release cash. If you don’t need it you can gift cash to the kids. Keep a record for the tax man.
Or
2. You could release cash from your property by doing a ‘reverse’ mortgage/equity release. If you take a lump sum out of your property and gift it to your kids, they can have the benefits of the use of the cash in your lifetime. i.e. you can witness it. It is possible to either pay the interest payments out of your own income or to simply allow the interest to be added to the debt.
This last mechanism will lessen your estate and the amount of IHT payable.
PB.
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