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    • squidier
    • By squidier 17th May 17, 4:07 PM
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    squidier
    Tenants in Common
    • #1
    • 17th May 17, 4:07 PM
    Tenants in Common 17th May 17 at 4:07 PM
    My father wants to gift his second home to his 3 children. The value of the house has increased substantially since he inherited it and the gift would be liable to Capital Gains Tax so the plan would be to gift part of the house (under the CGT allowance) each year.

    The 4 of us would be Tenants in Common, so in the first year for example my father would own 97% of the house and his children would have 1% each, the second year 94% and 2% each and so on.

    Is what I'm proposing possible?
    How easy/expensive is it to change the share ownership each year?
Page 1
    • Pixie5740
    • By Pixie5740 17th May 17, 4:55 PM
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    Pixie5740
    • #2
    • 17th May 17, 4:55 PM
    • #2
    • 17th May 17, 4:55 PM
    Nice try. These will be linked transactions involving linked people. HMRC will see through your little ruse and your father will have to pay the full amount of Capital Gains Tax due.
    Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.
    • squidier
    • By squidier 17th May 17, 5:02 PM
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    squidier
    • #3
    • 17th May 17, 5:02 PM
    • #3
    • 17th May 17, 5:02 PM
    Sorry I don't understand - isn't it an annual allowance? Where's the ruse?
    • 00ec25
    • By 00ec25 17th May 17, 5:44 PM
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    00ec25
    • #4
    • 17th May 17, 5:44 PM
    • #4
    • 17th May 17, 5:44 PM
    "linked transaction" is a term that applies to other aspects of tax, not to CGT in the context pixie has tried to use it

    what your parents propose is legal, tax efficient but very fiddly to get right as its success depends wholly on having documentary evidence in place to support every aspect of each gift

    HMRC use the term "asset splitting" to refer to a single asset being disposed of across a number of tax years in order to utilise the annual allowance.
    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg18150

    Obviously given the values involved with property HMRC has fought many cases to resist this
    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg18152
    and as a result there are some things you must do to be best placed if challenged by HMRC, for example:

    - as "land" is involved case law requires that its gift must be in writing

    - as the fragment given each year must be below the annual exempt amount the valuation of the fragment must be robustly documented. Whether that means a professional valuation of the property is done each year, or whether the parents choose a less rigorous approach is at their risk. However given the current exempt amount is "only" £11,300 and you want it split 3 ways the property valuation would not have to be far out each year for the total exempt amount to be exceeded

    - property would be owned as tenants in common so the Land Registry legal ownership record entry would not need to be changed each year. However, it is essential that the underlying beneficial ownership is changed each year since that is the basis on which CGT is levied. That would mean a new deed of trust each time the beneficial ownership changes

    - obviously each gift itself falls within the Potentially Exempt Transfer (PET rule) for inheritance tax if/when father dies
    Last edited by 00ec25; 17-05-2017 at 5:57 PM.
    • squidier
    • By squidier 17th May 17, 6:07 PM
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    squidier
    • #5
    • 17th May 17, 6:07 PM
    • #5
    • 17th May 17, 6:07 PM
    Thanks 00ec25 - as I suspected, the paperwork and legal costs involved might not make it worthwhile.
    • Mojisola
    • By Mojisola 17th May 17, 6:11 PM
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    Mojisola
    • #6
    • 17th May 17, 6:11 PM
    • #6
    • 17th May 17, 6:11 PM
    My father wants to gift his second home to his 3 children.
    Originally posted by squidier
    Apart from the tax side of things, do the three of you really want the complications of being joint owners of a property?

    Wouldn't it be easier for the house to be sold, the tax be paid, the rest shared between the three of you (and your father to live more than seven years)?
    • G_M
    • By G_M 17th May 17, 7:46 PM
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    G_M
    • #7
    • 17th May 17, 7:46 PM
    • #7
    • 17th May 17, 7:46 PM
    How long since dad inherited and has probate been granted? I'm guessing some time, and yes, but a better solution in retrospect would have been for the Executers at the time & dad to draw up a Deed of Variation to the will such that dad never inherited but passed the inhetitance directly to the 3 offspring.

    This may also have had Inhertitance Tax advantages.

    I also query whether joint ownership is wise.
    * What if one wants to liquify the asset to buy their own home (or travel round the world etc)?
    * Who maintains the property? What if they disagree it needs eg a new roof or apatching up?
    * what if one of them divorces and the ex makes a claim?
    There are a multitude of potential issues arising from joint ownership.

    Dad should either :

    * sell the property and gift the money (and then make sure to survive 7 years!)
    * stick a tenant in, and factor the property into his will

    (just my view)
    • Keep pedalling
    • By Keep pedalling 17th May 17, 8:43 PM
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    Keep pedalling
    • #8
    • 17th May 17, 8:43 PM
    • #8
    • 17th May 17, 8:43 PM
    Apart from the issues already raised, this could just be kicking the CGT issue down the road. Assuming the property continues to increase in value, you will end up with your own CG issue over time.

    A lot could also go wrong in the 30+ years this transfer will be spread over, its far to complex better to bite the CGT bullet and make cash gifts backed up by term insurance to pay any IHT should he die within the first 7 years.
    • squidier
    • By squidier 18th May 17, 12:00 PM
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    squidier
    • #9
    • 18th May 17, 12:00 PM
    • #9
    • 18th May 17, 12:00 PM
    Thanks for all your comments.

    Apart from the tax side of things, do the three of you really want the complications of being joint owners of a property?
    Yes it will be complicated, but I believe we can set up a declaration of trust to mitigate most of the potential problems. This is a house that has been in the family for many many years and we are all keen to keep it. Dad will certainly never sell it in his lifetime.

    How long since dad inherited and has probate been granted? I'm guessing some time, and yes, but a better solution in retrospect would have been for the Executers at the time & dad to draw up a Deed of Variation to the will such that dad never inherited but passed the inhetitance directly to the 3 offspring.
    Yes, it seems that would have been the sensible thing to do in hindsight - it was 30 years ago!

    I told Dad I would see if there was a way for him to hand the property over to us without incurring a big tax bill and was trying to be creative! I don't think it's going to work, it's best for him to hang on to it, he is over 90 years old and neither of his properties or savings will take him over the IHT threshold.
    • DumbMuscle
    • By DumbMuscle 18th May 17, 12:17 PM
    • 196 Posts
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    DumbMuscle
    Apart from the issues already raised, this could just be kicking the CGT issue down the road. Assuming the property continues to increase in value, you will end up with your own CG issue over time.

    A lot could also go wrong in the 30+ years this transfer will be spread over, its far to complex better to bite the CGT bullet and make cash gifts backed up by term insurance to pay any IHT should he die within the first 7 years.
    Originally posted by Keep pedalling
    It's not just kicking it down the road, but also making it more complicated.... Given that the initial value of a gift for CGT purposes is it's value at that time, this means that CGT will need to be calculated on the eventual sale price minus the total value of all the small gifts. (Though you would end up paying less overall than if you did a single transfer now and then a single sale later).

    It's also worth noting that in the event that your father dies within 7 years of any of the gifts, there will be inheritance tax implications.
    • getmore4less
    • By getmore4less 18th May 17, 2:19 PM
    • 29,430 Posts
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    getmore4less
    Thanks for all your comments.



    Yes it will be complicated, but I believe we can set up a declaration of trust to mitigate most of the potential problems. This is a house that has been in the family for many many years and we are all keen to keep it. Dad will certainly never sell it in his lifetime.



    Yes, it seems that would have been the sensible thing to do in hindsight - it was 30 years ago!

    I told Dad I would see if there was a way for him to hand the property over to us without incurring a big tax bill and was trying to be creative! I don't think it's going to work, it's best for him to hang on to it, he is over 90 years old and neither of his properties or savings will take him over the IHT threshold.
    Originally posted by squidier
    pretty much a no brainer to just keep it and get the CGT clock reset when he passes if there is no IHT on his estate.

    then plan who/how it is best passed on if the next generation would start to get into IHT territory then skipping may be a n option to look at
    Last edited by getmore4less; 18-05-2017 at 2:21 PM.
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