Why not just gift the properties to your heirs during your lifetime. As long as you’re confident that you will survive for 7 years so there will be no Inheritance Tax to pay? You could do this, but you will incur a Capital Gains Tax liability. Even if you give the property away, you will still have to pay Capital Gains Tax on the difference between the price when you bought it and its market value at the point you give it away.
The rate of Capital Gains Tax to be paid on BTL properties is 18% for basic rate taxpayers and 28% for high rate taxpayers after deducting the £12,000 Capital Gains Tax annual allowance.
This leaves you with two options:
- Do nothing and worry endlessly about the IHT bill facing your heirs and the amount of money HMRC will take from your children because you took no action.
- Write a large cheque now for the Capital Gains Tax bill, so that your kids can write a smaller cheque later.
If you can afford to gift the property and you have the cash to write the cheque for the CGT, other factors might prevent you from doing this. If your kids are young, or irresponsible, disabled or vulnerable, or have partners or spouses you don’t fully trust, a simple gift may could backfire.. and you might lose more than you hoped to save.