What are the inheritance tax implications of a transfer of equity?

What are the inheritance tax implications of a transfer of equity?

A transfer of equity is the process of changing a property’s ownership status. This could be by adding a new owner or removing an existing one, perhaps in the case of a separation or divorce. To make this change, the equity – the proportionate value each party owns – must be transferred.
If you are about to begin the transfer of equity process, it is important to be aware of some of the tax implications involved and how they could impact you in both the short- and longer-term.

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Professional advice

Seek advice from a transfer of equity solicitor, such as https://www.parachutelaw.co.uk/transfer-of-equity-solicitor, to receive tailored guidance based on individual circumstances.

Inheritance tax

The standard rate of inheritance tax, which is an amount charged based upon the value of a person’s estate when they die, is currently 40 per cent minus a tax-free allowance. There are also several exemptions and thresholds you may need to consider. A transfer of equity solicitor can also help you with this.

Let’s take a look at how some exemptions could affect a transfer of equity:

Gifts and potentially exempt transfers (PETs)

If the person making the gift survives for seven years after the transfer, it becomes exempt from inheritance tax.

Immediate charge on lifetime transfers

If the person making the transfer does not survive for seven years, the gift may become chargeable to inheritance tax.

Spousal and civil partner exemption

Transfers of equity between spouses or civil partners are generally exempt from inheritance tax; however, this exemption may not apply if the transfer is part of tax avoidance arrangements.

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Stamp duty

While stamp duty may be applicable, certain scenarios – such as divorce, inheritance, or a mortgage-free property – may exempt individuals from paying stamp duty.