Housing Property and the Inheritance Tax

While the rising prices of property is making it difficult for the first-time buyers, it is actually increasing the growing wealth of the individuals who have already invested in property.

If the wealth of the individual is increasing it is a good news but we should not forget the inheritance tax that might have to be paid on our wealth.

The figures show that the people are unaware of the inheritance tax that they might have to pay at the time of their death.

For example, in the last year the inheritance tax has earned more than ?5 billion for the first time and it keeps growing. According to the financial services provider NFU Mutual the figure will be rising to ?6.5 billion.

According to BBC news, the UK's biggest mortgage lender, the Halifax, said that fewer homes had been on the market in 2018 than in any year of the past decade. House hunters are left with the little choice which means that the prices have till risen as a result.

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Today, because of the rising prices of property, economic uncertainty and fixed salaries many first time buyers are finding it hard to secure an affordable mortgage.

Although the resident nil rate band is also introduced, under which the primary property is left to the direct descendants and the allowance is worth up to an extra ?125, 000. The band is expected to rise to ?175,000 by tax year 2020/21. This will allow couples to leave a family home to their children up to the value of ?1 million without inheritance tax to pay.

There is still a need that the wealth is triggered down to our children instead of giving it away to the estate. This can help ease off some pressure off their shoulders, if they are struggling to find an affordable mortgage. What options we might have if we want to help them buy a house while minimising the inheritance tax that they might have to pay?

There can be 2 options

• We can give money as a gift.
• We can give them a loan.

GIVING GIFT TO MY FAMILY

Making gifts and transfers in your lifetime is one way of planning your estate. It's a good way of cutting the Inheritance Tax.

If you are giving gift to your children the maximum amount that you can give tax free is ?325,000 provided you survive for 7 years after giving the gift. Otherwise your children will have to pay inheritance tax.

Married couples will be able to pass on estates worth up to ?1m to their direct descendants, including a family home.

People who sell an expensive property will be eligible for an "inheritance tax credit" so can still qualify for the new threshold, as long as most of the estate is left to descendants.

LOANING THE MONEY

THE ARRANGEMENT

Loaning the money to the family will be a legal arrangement. However, to qualify as a loan the arrangement needs to be made as a loan rather than a gift. The legal contract will be a written contract (even though it will be between the family members) with all the terms of the contract mentioned in it. For example, waiver at the time of death, the terms of repayment and it should be signed by both.

If you are giving a loan you might want to give a lump sum money for example ?300,000 and charge monthly payments from your children. However, for it to qualify as a loan an interest needs to be charged on it otherwise it will be treated as a gift.

TAX IMPLICATIONS AS A LENDER

For inheritance tax purposes, it is the same as possessing the whole amount and it remains part of your estate. It will be taxed at the time of your death.