Capital Gains Tax (how can I avoid it?)

Stevan_Walker

I want to invest an inheritance in a house that my son will live in whilst he is at university. My son will only need the house for three years, after which he will doubtless get work somewhere else in the country, and so I would then want to sell-up and re-invest in property in my home town.

My question is this: if property prices start to improve, I could be faced with a large capital gains tax (CCT) bill upon sale of the house that would then make buying back into property in my home town unffordable - so what options do I have?

I have considered buying in joint names with my wife to double the tax free CCT allowances but these are higly likely to be reduced in future as whoever wins the next election starts to pay down UK debt. CCT is always a soft target for chancellors!

I have also considered buying in my son's name but this creates problems because I am not ready to give him his inheritance (he's one of four children who will need help in future) and if I gift the purchase price to him, I'd presumably pay income tax when he sold the house and paid me back.

The two remaining options seem to be either lending my son the purchase money on an interest free basis or my making a financial legal charge with the land registry when the house is bought (rather like a mortgagee or secured loan creditor would do). These presumably would avoid CCT and any income tax liabilities for me and would enable my son to keep any profit free of CCT when he sells the house. Are either of these options permissible under UK law and, if so, which would be best?

Any advice would be gratefully received.

bmunky7

Couldnt you just buy the house yourself and move in yourself for a couple of months declaring to the HMRC that this is your primary residence. You move back to your actual main residence again declaring your original house as your new primary residence and when the new property is sold in 3 years time the last 3 year's are exempt for CGT (last 3 years always exempt for a primary residence, which the new property will have been for a period) and no tax is due.

By the way you could also buy the house in your son's name gifting him temporarily the money as when he later repaid you this is not assessed under income tax. Cash doesn't count for CGT so you pay no tax.

In my opinion the other options are unneccessarily complicated.

joolley

Move into it for 3 months when he is done university. All post etc should go there and all utilities etc in your name. Then sell. No CGT.

joolley

silvercar

The Tax inspectors would be rightly suspicious if you lived in a student [STRIKE]hovel[/STRIKE] house for just a few months.

The answer is to pay for specific tax advice. There are ways around, including setting up a trust to own the property.

GDB2222

You are allowed to make the PPR choice, regardless of any suspicion from the tax man, but I thought the exemption to CGT only applies for 2 years not 3?

silvercar

GDB2222 wrote: »

You are allowed to make the PPR choice, regardless of any suspicion from the tax man, but I thought the exemption to CGT only applies for 2 years not 3?

Exemption from CGT applies to the last 3 years for a property that was once your main home.

When you get into a new situation where you own 2 or more homes, you have 2 years to declare which is your PPR for tax purposes, after that it goes on fact rather than declaration.

Stevan_Walker

Thanks guys for these replies.

The trouble with tax planning is that the rules change every year and, in this regard, the Treasury is likely to introduce some punishing changes to the rules over the next few years. Accordingly, I'm not confident that the tax free allowance of 10k or the tariff of 18% or even the 3-year Private Permanent Residence (PPV) rule will be with us in three years time when I come to sell. Certanily PPV is likely to be abolished following the abuse made of this rule by MPs recently.

Overall, I think that the most robust option (provided one trusts one's son:rotfl:), even though it involves more legal work, would be to lend my son the purchase money and have a legal charge written in the Land Registry's entry to protect my interest in the future disposal of the property. I'd then just need to agree with my son that any profit made on the property's sale should be re-paid to the family.

poppysarah

Be as an MP and change which is your main home in order to benefit from the tax rules.

GDB2222

silvercar wrote: »

Exemption from CGT applies to the last 3 years for a property that was once your main home.

When you get into a new situation where you own 2 or more homes, you have 2 years to declare which is your PPR for tax purposes, after that it goes on fact rather than declaration.

There was a discussion on this point on this forum within the last 2 weeks, with a link to the HMRC website about making the election. Clearly, if the OP thinks that CGT will be an issue he needs to take paid-for advice in any case.

Hopejack

Can I suggest the OP also posts on the 'Tax' thread on this forum - may be more appropriate? I posted on there a few weeks ago re CGT for myself and got some great advice....