If you own a house, it is part of your estate for inheritance tax purposes and inheritance tax should be paid on it when you die at 40% however there are ways that can help reduce the tax bill.
According to HMRC guidelines you do not pay inheritance tax if the following applies to you:
Inheritance tax threshold
Each person has a tax free allowance of £325 000. If the value of their estate at the time of their death is less than £325 000 no inheritance tax will need to be paid.
Passing the house to spouse
If you pass your house to your spouse ( your husband\wife ) or a civil partner, charity or a community sports club you don't pay inheritance tax even if you do that within 7 years of dying.
If you pass your home to your children or grandchildren the tax free allowance will increase from £325 000 to £500 000 and you will not have to pay inheritance tax if the total value of your estate is £500 000 or less.
You can therefore reduce or avoid paying inheritance tax if the value of your estate is within the tax free allowance thresholds. You can do this by taking the following steps:
Giving gifts during your lifetime
If the value of your house is £325 000 or less but the value of your total estate which includes money, possessions etc exceeds this threshold you can give them away as gifts during your lifetime. HMRC has defined such gifts as exempted gifts and you have a tax free allowance of £3000 per year. If you don't use this allowance in a particular year you can carry it forward to the next year.
Giving away home before dying
Even if the value of your house is more than £325 000 and you pass it to your spouse there is no inheritance tax even if you die within 7 years of giving it away.
You can give the house away and continue living in it
If you give the house to any of your relatives or even to your children and live for 7 years there will be no inheritance tax to pay on it. You can choose to continue living in the same property however, you will have to give rent to the new owners at the market rate and pay all the bills of the house.
If the new owners are your children and they are living with you in the property you don't have to pay rent even if you gave them a portion of your property.
Giving charity
If you leave 10% of your estate to charity, the inheritance tax will be paid at the reduced rate of 36%
Transferring any unused nil rate band between husband and wife.
If there is any unused nil rate band when one of the partners dies it can be transferred to the tax free allowance of the other partner and this can reduce the inheritance tax bill.
If you own a property or you have inherited a property or you are selling your property and you want to know about the taxes don't hesitate to call Taxaccolega and our expert team of accountants will be happy to help you.
Call our accountants in croydon 020 8127 0728 or drop us a message here.