Many people worry about inheritance tax and, for the majority of people, their home is their most valuable asset. Parents, particularly as they enter their twilight years, may consider giving their home to their children or grandchildren to keep the taxman from getting his hands on it.
For income tax purposes, income from land or property in the UK which is owned by the same person or group of persons is treated as forming a property rental business. Tax is charged by reference to the profits of the business as a whole, rather than by reference to each individual property.
Since 1 April 2016, higher rates of stamp duty land tax apply to purchases of second and subsequent residential properties where the cost of the additional property is over £40,000 (i.e. virtually all properties).
While most people know that you do not have to pay capital gains tax on any profit you make on the sale of your main home, it is generally less well known that you can still benefit for the relief for the final period for which you own the property, even if it is not your main residence at that time.
Most people are aware of the existence of the capital gains tax exemption for their only or main home, but it is probably fair to say that the intricacies of the relief are less well known. For the gain to be fully exempt, the property must have been occupied as the taxpayer’s only or main residence throughout the period of ownership.
Business property relief is a very valuable relief that allows certain business assets to be passed on free of inheritance tax. Other business assets qualify for 50% reduction.
On death, in the absence of business property relief, a business will be chargeable to inheritance tax.