Whatever your reasons for property tax planning for child, whether it is to reduce the value of your estate for inheritance tax (IHT) purposes, to reorganise ownership of your family’s properties, or to hold your business premises in a tax-efficient manner, there are numerous scenarios in which it may be advantageous to do so.
Gift of a Cash to the Child
Parents may give a simple unconditional financial gift to their kid for the youngster to be able to put down a substantial deposit or get full finance to purchase a home. The kid would be the only owner, and the purchase would be supported entirely by cash, with the possibility of a commercial bank loan if necessary. Additionally, there are certain Inheritance Tax (IHT) advantages that may be realised via the use of this technique, provided that certain requirements are met.
Via a Trust
Because trustees often have greater difficulty obtaining commercial bank mortgages, this method is most effective when the trustees can purchase the asset entirely using cash that they already have on hand in most cases.
If there is no existing trust, the parents might establish one by each making a lifetime transfer of £325,000 (a total of £650,000) to a trust to support it, provided that they had not made any transfers in the preceding seven years before doing so.
In addition, since the amounts transferred are chargeable lifetime transfers, if the parents transfer more than their nil rate bands for IHT, the excess would be subject to an IHT charge of 20% at the time of transfer, regardless of the amount transferred.
Transfer of Potentially Exempt Property (PET)
Capital Gains Tax (CGT)
The most significant drawback is that the youngster has complete control and ownership over the situation. On a practical level, it is this feature that has the potential to be a source of contention between parties.
As a result, if the parents hold a portion of the property and the kid owns the balance, the child cannot sell or mortgage the whole property on his or her own.
So, what is the most effective method? The most suitable approach will rely on the overall circumstances of the family as well as their willingness to bear the specific tax charges associated with the solution of choice working closely with inheritance solicitors.
Because establishing trust and raising the necessary funds to cover the financial costs of property purchase will take time, it is critical to begin preparing as soon as possible teaming up with a inheritance tax solicitor. Inheritance tax planning solicitors with comprehensive legal guidance can confidently guide you through the best solution tailored your needs.