29th July 2024

“I put my house into a trust to avoid paying Inheritance Tax and care costs”

Planning for the future often involves finding ways to minimise the Inheritance Tax (IHT) burden and preserve the assets you’ve worked hard for.

For most individuals, their home will be their biggest asset. To avoid paying IHT or selling the property to fund care, many look at placing their home in a trust, believing this will guarantee that the property will fall outside of their estate for IHT purposes.

However, it is not quite as straightforward as ring fencing your property into a trust; consideration needs to be given to many factors including the following:

  • Reservation of Benefit: If you continue to live in your home after transferring it to a trust, the entire value of the property could still be taken into account for IHT purposes. This means the expected results of saving tax will not apply as you are continuing to benefit from the gift.
  • Capital Gains Tax (CGT): Transferring your home into a trust could trigger CGT if the property’s value increases between the transfer and its eventual sale. Trusts pay a higher CGT rate than individuals.
  • Immediate IHT Liability: If the value of your share in the property entering the trust exceeds £325,000, there could be an immediate IHT liability of 20%, impacting your estate’s value. There are also periodical and exit charges to consider, fund and report to HMRC.
  • Ownership and Control: Once your home is in a trust, the legal owners become the trustees, meaning you lose control of your home. Should you wish to move home, you require cooperation from your trustees who will be acting in the sale and purchase.
  • Probate: While probate might not be necessary for the property held in the trust, it could still be needed for other assets and on this basis, your Executors will still need to apply to the Probate Registry.
  • Trust Administration: Trusts require proper administration, including registration with HMRC’s Trust Registration Service.

Estate planning is a significant step, and it’s crucial to fully understand the implications of placing a property in a trust before executing the same. Trusts are complex mechanisms and failure to seek expert advice could result in unnecessary costs and delays for your loved ones.

We at Buss Murton Law specialise in helping individuals with later life planning. There is no one size fits all and it is vital that you seek personalised advice to enable you to make the best decision for you and your loved ones.

Contact us on 01892 510 222 or email info@bussmurton.co.uk

 

Tax Law can change significantly, this article is a guide only.