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Inheritance Tax and Second Homes

By: Tracy Whitelaw - Updated: 19 Aug 2010 | comments*Discuss
Inheritance Tax Second Home Inheritance

Buying a second home as a way to provide financial security for yourself and your family is a move that more and more British citizens are making. As the property market continues to stay profitable and a ‘safe bet’, people are investing in bricks and mortar again to act as a financial buffer against dwindling pensions and state support.

For many, one of the main concerns of buying a second home as a UK resident is the sizeable amount that will be due to the government should the home be inherited by a family member . There are a number of issues with inheritance tax that are worth researching and some of those are mentioned below.

The Truth About Inheritance Tax

There are many myths in existence about inheritance tax on second homes. Most people are aware of the ability to gift up to £3000 a year to any individual without being liable for any inheritance tax on the amount . As soon as you gift anything in excess of this limit, you are liable to pay inheritance tax on the amount if you die within seven years of gifting it. For many, this rules out gifting a home to children or other family members when old age creeps up on them.

What many people don’t know about inheritance tax is that it is charged on estates on death worth over £600,000, but there are exceptions to this. A couple are allowed to combine their tax allowances of £300,000 each to escape tax on the first £600,000. By 2010, this amount will be raised to £700,000, presumably to take into account rising house prices. The following don’t count as being part of an individuals estate:

  • Any gifts to political parties
  • any agricultural or business assets
  • any monies gifted to charity
  • any gifts made seven years prior to death
  • all gifts to your spouse

Issues With Inheritance Tax

Many people who worry about inheritance tax on their second home are concerned that it is simply taxation on already taxed money. Many people also believe it is only a ‘rich persons’ tax and to a certain extent they’re partly right. There is only around 7% of the UK population that actually pays inheritance tax and they do so because their assets exceed the amount set by the chancellor.

In the grand scheme of things, this is a tiny amount of people who are liable for paying inheritance tax so some of the issues may be slightly blown up out of proportion. It does however become an issue for many UK residents when they realise that countries such as Australia have no equivalent to the UK inheritance tax at all.

Considerations For Lowering Inheritance Tax Liability

There are a few options when trying to lower inheritance tax payments on your estate when you die. You can set up trusts to pass on your assets and capital to your children or other family members. In order to do this, you can seek out professional advice from a tax expert. If you own insurance policies, you should have them also written to a trust so that they’re not classed as part of your estate when you die.

If you’re still very concerned about your family having to pay inheritance tax when you are no longer around, you can always set up another insurance policy to cover those bills that your heirs may have to pay.

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