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Loophole opens up IHT family pension opportunity

Homeowners can receive a higher annuity income, pay less tax and avoid IHT liabilities on their property through selling their home to family pension schemes.

A tax loophole means that homeowners can sell their properties to a family pension scheme and buy a purchased life annuity with the proceeds.

But Standard Life senior technical manager John Lawson believes that the Inland Revenue’s Capital Taxes Office may look to close the loophole in the run-up to A-Day.

The interest element of the purchased life annuity and the deemed-benefit market value rent of the house are taxable but incur a lower tax charge than any other IHT-avoidance option, such as gifting the house to relatives and funding an annuity alternatively, giving a higher income.

On top of this, the property would be sheltered from IHT. Taking no action would also result in a slightly lower net income and IHT liabilities on the property.

Lawson says: “The Capital Taxes Office may clamp down on this and you can see why when IHT is taxed at 40 per cent. The law might also be retrospective.”

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