Legal tips to avoid inheritance tax
If you want to avoid that your heirs have to pay inheritance tax, you have to react even during your lifetime. A legal means of saving your heirs inheritance tax is to give your close family wealth during your lifetime. This can be real estate, but also money or other assets. look here for info on uk tax avoidance.
1. What are the allowances?
With regard to the amount of the allowances, there is no difference as to whether the asset was inherited or donated. Spouses have a free allowance of 500,000 €. A child has an allowance of € 400,000 for each parent. In the relationship of grandparents to grandchildren, a free allowance of € 200,000 applies.
If, for example, parents want to transfer a property to a child during their lifetime, this may have a value of up to € 800,000. Up to this amount, the child does not have to pay gift tax. If the property had a value of € 900,000, only the excess € 100,000 would have to be taxed, which are above the free allowance.
The amount of allowances corresponds to the current legal status. The number of allowances may change over the years.
2. How often can the allowance be used?
With donations, the allowance can be exhausted every ten years. If a parent transfers an asset to a child in 2018, the child can fully benefit from the € 400,000 allowance in 2018. The parent may transfer another asset to this child in 2028, and the child may again take full advantage of the allowance, and so on.
Therefore, anyone who starts early in their lives to give away wealth to close relatives can succeed in making considerable donations over several decades without having to pay inheritance tax.
3. Risk of bestowal
Anyone giving away something during their lifetime can usually no longer reclaim the gift from the recipient, with the exception of narrow exceptions. Therefore, you should consider carefully whether you want to pass on parts of your assets to third parties during your lifetime and may not be able to reclaim these gifts.
Special care is needed when parents transfer a property that they own to a child. With the entry of this child in the land register, this child is the owner and thus “master of the property”. If the child is ungrateful after the donation has been made, it could demand rent from the parents or even their departure from the property. Therefore, the donor should always secure a housing right and/or the usufruct under land registry law in transfers of real estate. Only then can the donor continue to use the property (for example, collect the rent) or continue to live for free in the property until the end of his life, even if he should throw up with the child at a later date.
Likewise, you can reserve in the donation contract, that the property falls back to you, the recipient should fall into financial collapse, so for example on his assets to open insolvency or foreclosure against him are operated, etc. In addition, you can also regulate the gifted person does not sell the property during her lifetime, ie, in particular, can not give away or sell it, and that in such cases the property falls back to you. If you retain such rights by contract, you can thus avoid that the property gets into the hands of creditors of the recipient or is deprived of the influence of your family. Furthermore, you can contractually stipulate that the property given away may only be charged with your consent.
4. Which formal requirements do I have to observe?
If a property is transferred during his lifetime, this transfer transaction must be notarized without exception. In such a notarial contract the reciprocal rights and obligations of donors and recipients can then be regulated.
However, when transferring other assets, such as money or property (as long as it is not a real estate), you do not have to sign a notary contract, you can, but in certain cases, this will be advisable. In any case, however, you should document a donation in writing, by writing down the date of the gift, the gifted asset itself, the person of the recipient in writing and have this confirmed by all participants (donors and recipients) with place and date, and signature.