Selling Property – IHT Implications

This week my Partner and I viewed a property in Cheltenham and this viewing inspired me to write this article on taxation and selling property.

The house was immaculate and so was the price! £600,000 for a four-bed house. Although you’re not supposed to view the furnishings and decoration, you’re expected to look through that, we couldn’t help noticing the hundreds of photos on the wall and in picture frames littered throughout the house.

They were of their children, grand-children and great grand-children.

“Why are the vendors moving?” I asked the estate agent.

“They’re just moving into rented” was the reply.

Suddenly we had a lightbulb moment as we realised they were selling to raise the money to give to their children and grandchildren now rather than on their death. How lovely. But also how fiscally clever.

Let me explain.

The vendors were both in their mid-70’s, healthy and fit. By gifting the money to their heirs now, they potentially could avoid Inheritance Tax (IHT). So long as they live beyond 7 years the £600,000 will not be added back into their estate.

The £600,000 less fees would be exempt from Capital Gains Tax (CGT) since this is their Principle Private Residence.

By moving into rented accommodation, they will also be able to consume about a £1,200 per month and reduce their estate. Normal expenditure is also exempt from IHT. He was a University Lecturer so probably enjoys a healthy final salary pension, so I doubt if the couple are short of disposable income.

Finally, by not owning a property, if they ever have to go into care, the local council might pick up the tab rather than putting a charge on their home or selling it for the care home costs.

So clever stuff really. What made me chuckle though, was that the idea to move was the ladies, she was going to convince her husband that night, I don’t think he had much choice in the matter.

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