Inheritance tax warning as ‘common mistake’ could land you with ‘hefty tax bill’ | Personal Finance | Finance
Families may end up with a huge inheritance tax (IHT) bill of thousands of pounds because of a common mistake, according to a finance expert.
Rowan Harding, financial planner at Path Financial, said people in the UK may be penalised when gifting cash or assets, such as a house, because they don’t know strict inheritance tax rules.
At present, Britons are entitled to give as much cash or as much of their own goods to someone as they like. But they should be aware of the tax implications.
Giving up to £3,000 in any one year to a loved one or friend is tax-free, but any more and they could fall foul of it being added to the value of their estate, and therefore, liable to the taxman.
Britons may have thought about giving up their house to their son, daughter, or someone close to them now so they don’t have the tax burden when they pass away.
But individuals are warned “be aware” that if they die within seven years, they could still leave them with a tax bill.
Additionally, if they choose to still live in the property or benefit, in some way, from giving up the property, they may still have to pay the taxman.
Mr Rowan said: “People should be aware of the tax implications when they decide to give away sums of money or an asset, such as a property.
“The person receiving the gifts could be liable for tax if you pass away up to seven years later or you continue to benefit from the gift in some way.
“Getting the right advice on these topics will be crucial so you can avoid a hefty tax bill and make sure more of your money stays with your friends and loved ones.
“Whether it’s cash you want to give, a house or something else, make sure you’re in-the-know on what you might owe HMRC so you don’t or your loved ones don’t find themselves out of pocket.”
Under the current laws, people need to pay 40 percent inheritance tax on theirr estate – so their property, money and possessions – that they pass on after they die – but only if they are leaving more than £325,000 behind.
This levy is usually considered as only affecting the extremely wealthy however, due to the Government freezing the tax band at £325,000 until 2026 and as house prices continue to skyrocket more people are getting pulled into paying the tax.
This is made even worse because of high inflation and interest rates. According to the Office of Budget Responsibility (OBR) the number of people expected to pay the tax will rise from 40,000 to 50,000 by 2027.
As more Britons are expected to pay the levy in the coming years, people will need to look at ways to manage their money and potentially avoid the tax before they die.