Can a transfer of equity incur inheritance tax?


A transfer of equity is when the legal ownership of a property changes hands. This can happen because of a variety of causes, such as marriage, divorce, or death. The transfer of equity can be a good idea for many reasons (and sometimes it’s necessary), but it’s wise to understand more about it, especially when it comes to inheritance tax. Read on to find out more.
What constitutes a transfer of equity?

Before delving into the complexities of inheritance tax, it’s useful to know more about the transfer of equity. Basically, any alteration in the legal ownership of a property is a transfer of equity, and that can range from adding or removing a person’s name from the property title to transferring shares of ownership between existing owners.

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What Is inheritance tax?

Inheritance tax is a levy imposed on the estate of a deceased person, including their property, money, and possessions. In some situations, this tax also applies to certain lifetime gifts and transfers of equity made within a specified timeframe before the person’s death.

This is why seeking specialist legal help with your transfer of equity can be important. You can find more information here:

Transfer of Equity and Inheritance Tax Liability

The question often arises: Does a transfer of equity trigger inheritance tax? The answer largely depends on the circumstances surrounding the transfer.

Inter-Spousal Transfers

In many circumstances, transfers of equity between spouses or civil partners are typically exempt from inheritance tax. This means that if a property is transferred from one spouse to another as part of a divorce settlement or for any other reason, you wouldn’t need to pay inheritance tax.

Gifts and Potentially Exempt Transfers

Transfers of equity made during someone’s lifetime, whether as gifts or otherwise, may be subject to inheritance tax if they exceed certain thresholds. It might be that there are annual gift allowances and lifetime gift exemptions that you can use to mitigate potential tax liabilities, so look into that to be sure.

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Considerations for Joint Ownership

When multiple people jointly own a property, a transfer of equity involving one of the co-owners can have inheritance tax implications. For instance, if a parent adds their child’s name to the property title, it could be viewed as a gift for inheritance tax purposes, potentially triggering tax liabilities depending on the value of the share transferred.

Professional Advice is Key

Working through the ins and outs of transfer of equity and inheritance tax requires careful consideration and often needs professional advice. Legal and financial experts can provide tailored guidance based on individual circumstances, helping to minimise tax liabilities and ensure compliance with relevant regulations.

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