I HAVE BUILT UP A PROPERTY PORTFOLIO AND I’M WORRIED ABOUT INHERITANCE TAX (IHT), SHOULD I GIFT PROPERTIES TO MY ADULT CHILDREN?

I have come across this same question from numerous clients over the last 20 years and being a tax advisor it is not natural to say to clients that tax is not the most important factor they should be considering.

Important factors I ask clients to consider in the first instance are:-

1. Does the income from the properties fund your current lifestyle?
2. Does the income from the properties feature in your plan to fund your retirement?
3. If you were to gift the properties to your children, are you prepared to never be able to benefit from the income or capital value of the properties again?
4. If you were to gift the properties to your children they become both the legal and beneficial owner, how do you intend to protect the family wealth in the event that your children were to squander the wealth or get divorced?

The answer to the first question can be complex. Many clients have said I’m prepared to give the properties to my children, they will look after me, they will continue to give me the income earned from the property so long as I need it. This in the world of IHT is known as a gift with reservation of benefit, HMRC will still treat you as owning the property for IHT until such time as you cease to benefit from it.

The situation gets worse because the gift gives rise to an immediate charge to capital gains tax ‘CGT’ based on the open market value of the property, so the donor could find themselves paying on the gift and then the estate would also pay IHT on the value of the property that had been gifted.

It is possible to gift in excess of £650k (for a couple) to family members without giving rise to tax charges depending on your personal circumstances.

There are ways in which to mitigate tax charges in every scenario, you should talk to a tax advisor to establish the options available to you.

We can help you achieve your goals but will look at a holistic solution to meet your needs.

To find out the answers to the rest of these questions read the full article on the Charterhouse website

Or if you would like to discuss your property and how we can help you please contact us.