Families can end up with huge inheritance tax (IHT) bill of thousands of pounds due to a common mistake, according to a financial expert.
Rowan Harding, financial planner at The way is financialsaid that people in the UK can be penalized when they donate money or property, such as a house, because they do not know the strict inheritance tax rules.
Currently, Britons have the right to give anyone as much cash or their own goods as they want. But they should be aware of the tax implications.
Giving up to £3,000 a year to a loved one or friend is tax-free, but more than that could be misleading as it adds to the value of their estate, and is therefore subject to the IRS.
Britons may have thought about passing on their house now to a son, daughter or someone close to them so that they don’t have the tax burden when they pass away.
But individuals have been warned to “be aware” they could be left with a tax bill if they die within seven years.
Additionally, if they choose to continue living in the property or benefit in some way from disclaiming the property, they may still have to pay the IRS.
Mr Rowan said: “People should be aware of the tax implications when they decide to gift sums of money or property, such as property.
“The person receiving the gifts could be liable for tax if you die up to seven years later or continue to benefit from the gift in some way.
“Getting the right advice on these topics will be key so you can avoid a hefty tax bill and make sure more of your money stays with your friends and loved ones.
“Whether you want to give cash, a house or something else, make sure you’re familiar with what you might owe HMRC so that you or your loved ones are not left out of pocket.”
Under current law, people have to pay 40 per cent inheritance tax on their assets – meaning their property, money and assets – which they pass on after they die – but only if they leave more than £325,000 behind.
This tax is thought to usually only affect the ultra-rich, however, as the government has frozen the tax band at £325,000 until 2026 and as house prices continue to skyrocket and more people are being forced to pay the tax.
As more Britons are expected to pay tax in the coming years, people will need to look for ways to manage their money and potentially avoid tax before they die.