Tax dodge of the week: Give your grandchildren rent-free accommodation

By Contributing editor Emily Hohler Dec 05, 2005

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Unless the Government acts fast, A-Day in April 2006 will herald a change to pension rules that could allow relatives to help each other out in a highly tax-efficient way, says Money Marketing.

To prevent people from buying residential property with an effective 40% discount and then living there, the Inland Revenue “slapped a benefit-in-kind” charge equivalent to the going market rent.

However, while this charge applies to the property owner, their spouse, children, dependents, parents, guests and domestic staff, there are some notable exceptions to the list – namely siblings, grandparents and grandchildren.

That means that grandparents can buy a property within their Sipp, get 40% tax relief on the purchase price and allow their grandchildren to live there rent-free (as of A-Day), and that brothers and sisters can hold each other’s properties in their Sipps, claim the tax relief and let the other sibling live there rent-free.

As James Brooke, Financial Architect at Independent Financial Advisors And Associates, points out, “If this remains unchanged it will have a potentially huge effect on the property market.”

Published in Personal finance | More articles by Emily Hohler

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