Inheritance tax: how to give away your house and pay no taxes | Personal finance | Finance

UK house prices continue to soar, with the average house price being £281,000 in April 2022 according to the Office of National Statistics (ONS). That’s around £31,000 more than the same time last year. Inheritance tax is a tax paid on the value of a person’s estate upon death. Houses are usually the most expensive asset they own and can cause their estate to exceed the zero rate band threshold for inheritance tax.

Currently the threshold is £325,000.

You pay no tax below this figure, however, anything above will be taxed at a rate of 40%.

For example, if the value of an estate is £450,000, a person’s next of kin will only pay the 40% tax on the £125,000 above the threshold.

Britons can pass on their home, exempt from inheritance tax, to their spouse or civil partner on their death.

They can also increase the tax exemption threshold to £500,000 if they gift it to their children or grandchildren.

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Adopted, foster or stepchildren also fall into this category.

However, the person must own or hold a share of the property.

The estate must also be worth less than £2million.

If Britons want to leave their home to someone else, it will count towards the value of their estate.

There are ways for Britons to pass on their property while they are alive to reduce the liability of loved ones when they die.

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People can give away their property if they move out and then live for another seven years, due to what’s called the seven-year rule.

This is due to the seven-year rules.

Under these rules, donations made during the three years preceding death are taxed at the full rate of 40%.

Anything given three to seven years before death is then taxed on a sliding scale known as “conical relief”.

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This means it should be similar to local rental properties and not discounted due to it being a family member or friend.

They will also have to pay their share of the bills or live there for at least seven years.

Otherwise, it counts as a “qualified gift” and will be added to the value of their estate.

A conditional gift is a gift that is not fully given because the person giving it reserves a benefit to themselves.

Sometimes people don’t have to pay rent, which applies when someone has only given away part of their property and the new owners also live in the house.

Both of these rules should apply here.

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