AVOID INHERITANCE TAX ON BUY-TO -LET PROPERTY

Many people have turned to property investment as a way of saving for their old age. There are several advantages:

Commercial property can be passed from generation to generation free of inheritance tax.

Combined with a family trusts, parents can pass savings equal to the value of a family business or commercial property as well as that property to their children tax free.

However, if you have a flat you are letting out and wish to pass it on to your children, you may face either an inheritance tax bill of up to 40% of its value or a Capital Gains Tax bill of 40% of the gain if you transfer it to your children. Even then, they may still be due to pay IHT if you die within 7 years of the transfer.

Most owners simply transfer the property all in one go and suffer the CGT in preference to the usually higher IHT. But if you are well and likely to live a nother 7 years you can transfer the property in 'bits', giving your childrent a percentage share each year that uses you (and your spouses)CGT allowance for each year. Thereby you can avoid the CGT completely.

So if you and your spouse have a flat which is now worth £50,000, more than you paid for it after all expenses and taper relief, you could be looking at over £13,000 CGT on transfer, even if it is for no monetary consideration.

However, if you transfer a 25% share over to your children over 4 tax years, your joint allowances should wipe the tax out.

Legal costs are higher, but the saving could be around £10,000.

Take advice before you embark on this as there are other considerations to take into account.

Posted on 27 November 2006 at 11:47 by John