Back in the day, Inheritance tax (IHT) was paid solely, by the richest citizens of Britain. Being an 'optional tax', IHT imposes a 40% taxation upon everything one possesses at the time of their death, exceeding the minimum rate band. This amount is presently at £325,000. This amount is uniform till the end of the 2025-2026 financial year.
Any home in the U.K.,now, would cost a minimum amount of £327,000. This is more than the minimum rate band.
Therefore, many citizens and payers of tax shall incur the IHT on their property when they die. Not only the richest people, but alot of "middle class" people shall have to incur the IHT now!
This means that more and more taxpayers - and not just the wealthiest members of the population - will be suffering IHT on their death estates.
Many citizens of the U.K. are now, worried about this. They want a clear answer on how to deal with this.
A family residence is not an asset that is exempt from taxation at the time of one's death.
However, if the house is a farm cottage, then the IHT
APR is applicable.
Agricultural Property Relief needs a functionable farm that has been occupied for the requisite timeframe. It also needs that the farmer had been residing at the house, taking all decisions in and around the farmhouse, thereby using the house as a center of the agricultural land.
However, despite being a house, such an estate has to have farm workers or their widowers and/or widows, in order to be liable for an APR.
Moreover, even though the residence may be in accordance with the characteristics of a farm, the APR shall only exempt the due taxation on value of the agriculture. This shall be considered, taking into account, that the home has never been used for any other purpose apart for agricultural purposes.
What if the house is set to be gifted to your progeny? If your tax payer can obtain a 'no-benefit' from it. Here's how:-
How to get a 'no benefit' from the residential property?
If the donor evacuates the property, and can be deemed to be 'virtually abandoned' from any prospective benefit in the coming years.
HMRC has mentioned this in their guidance at IHTM14333.
Another solution is, to make a payment at the market rate, towards the usage of the residence.
This expenditure shall be genuine.
There exists a certain manner to gift a part of the family home, despite the original can buyer of the house can still keep a benefit. This is discussed in the Finance Act 1986 s. 102B(4), which was added to law in the year 1999. As per this amendment, the original home buyer can 'gift' somebody, a non-distributed dividend of the house. Thereafter, the original house owner and the concerned person shall co-habit. In this way, the original house buyer may not have to disclaim the benefits of living in the house.
As each individual and family has a different story and a distinct setting, it is best for you to take an advice from a taxation consultant. We also advise you to consider your family scenarios and entities, with your tax professional.
Contact us for support on understanding how Inheritance Tax works for properties.
