Should I put my house in a trust?

Category: Estate Planning&Tax

It’s generally not a good idea to put your home into a trust during your lifetime.

Some advisors suggest transferring a share of the home to a trust to increase tax allowances. However, if the amount exceeds certain limits, this can lead to immediate inheritance tax charges.

All intentionally set-up trusts need to be registered with the trust registration service within 90 days and kept updated. After this, the idea is that the house is outside your estate and protected from HMRC or the Local Authority.

Unfortunately, this is generally the point at which things go very wrong for a number of reasons.

  1. Placing property in trusts can be seen by a Local Authority as an intentional way to get rid of assets. If you ever need a financial assessment for help with care costs, they can deny funding because of this.
  2. If you still live in the property (or have rights to use it during your lifetime), HMRC will consider it a gift with a reservation of benefit. This means that the property’s value will be seen as part of your estate.
  3. When you place your house in trust, you can face higher inheritance tax when you pass away. This is because the residential nil rate band, which can be worth up to £350,000, will not be available. Some trusts attempt to work around this, but it’s uncertain whether this is effective. This can significantly impact your estate’s inheritance tax position, especially when considering other factors.
  4. If the trust allows a beneficiary to live in the property, the principal residence relief for capital gains tax may be lost when the property is sold or transferred. This relief is only available if the trust explicitly grants a beneficiary the right to occupy the property.
  5. Remember that these types of trusts may be subject to inheritance tax every ten years from creation. This is known as an anniversary or principal charge and depends on the property value at the 10-year mark. A return must be filed with HMRC, and any tax paid if tax is due.

It’s complicated and expensive to cancel these trusts, especially if they’ve been in place for a while and the property has increased in value. It’s not something that a regular person can handle on their own. You should get advice from a qualified solicitor who specialises in trusts.

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