There are many myths and misconceptions in relation to Estate Planning. Have you stopped to think about whether there is any truth to any of them?
Estate Planning Myth #7: If I give away property while I am still alive, this will avoid inheritance tax.
Not quite. The basic position is that if you make gifts above a certain value, you will need to survive the gift by seven years before it becomes exempt for inheritance tax purposes.
If you continue to live in a property that you have gifted this will be viewed by HMRC as a gift with reservation of Benefit ‘GWROB’. On death, HMRC will treat the property as if it was still part of your estate for inheritance tax purposes.
An extra inheritance tax allowance specifically relating to property was introduced on 06 April 2017, known as the Residence Nil Rate band. However, a lack of estate planning can result in this allowance being lost.
In addition to lifetime gifting, there are other measures that can be put in place that may reduce your inheritance tax liability, or avoid it altogether. Once again, it is vital that you take proper advice from a solicitor or financial advisor and put in place a plan tailored to your individual circumstances. Remember that in many cases timing is crucial, so the time to start making enquiries is now.
Finally, it is worth pointing out that the seven year rule explained above applies only to inheritance tax, and not eligibility for avoiding care home fees, or any other tax regime.
View more Estate Planning Myth Busters in our Blog