Re-gifting - Tax evasion?

edgarina

Hi all,

My father owns a Buy to let proerty he now needs to seel to pay of the mortgage on his primary residence. The profit would be about 40k after the 10100 CGT allowance has been removed.

I am one of 4 siblings. Can he 'gift' us a proportion of the property by putting us on the deeds, making the proportion less than 10100 so we don't have to pay CGT, and can we then in any way give him back the money to allow him to pay off the mortgage. I know its a long shot but thought I would ask. I realise we would all be liable for tax if he died within 7 years. I guess 10100 could be given back to him the tax year after the sale without tax.

I guess we could all pick up the vast majority of his living expenses with our gifts and drip feed the money back to him freeing up his money to save and pay off the mortgage, but could this be construed as tax evasion also?

Thanks in adavnce for any advice.

olivetti

The disposal to you and your siblings will deemed to be at market value, whatever you pay or don't pay so your father will still have a chargeable gain to declare. This is because you are all connected parties.

in order for you to take a share of the property for tax purposes you will also need to register the sale and purchase through the land registry, it is not sufficient to just 'say' you have part ownership.

HMRC get details of all sales through the land registry.

taxing

Your father would still have a £40k gain as he will have disposed of the house to you 4 by way of gift - so market value is used as proceeds of sale in the calculation of the gain.

The gifts would also count for IHT and fall out of account after 7 years. Of course he might still have his £3000 annual exemptions available and, on death, an IHT charge would be dependant on his death estate.

If each of you can afford to live in your usual manner and gift excess cash to your father for his mortgage payments this could be classed as regular gifts out of income and free from IHT. You would need to commit to regular payments.

The mortgage is a debt on his estate and would reduce his IHT estate on death so maybe do nothing is the best advice??

Regards.

edgarina

Either I am still confused or didn't explain myslef very well.

If part ownership of the BTL property which has no mortgage is signed over to each of the siblings, the amount signed over (put on the deeds prior to sale) being equal to a percentage of the market value that would equal about £10,000 in real terms. That would mean my fathers Capital gain, after his 10100 expemption from the property would be nominal as he would only recieve his percentage share of the profits from the sale acording to the deeds. The siblings would all recieve their percentage which would also be under the CGT threshold. Overall no CGT.

If that is true my question is; is there then a legal way for myself and my siblings to transfer our proceeds from the house back to my father to allow him to then pay off the mortgage on his main residence. Forinstance by using our proceeds to pay for his living expenses allowing all his income to go towards paying off whats left of the mortgage over a year or two.

Sorry if I am still missing some vital point.

CLAPTON

lets say the property is worth 150,100 and he bought it for 100,000


he has disposed of an asset worth 150,100 and made a gain 50,100
the fact that he has sold / given 1/4 to four people makes no differeence to him; his disposal is for 150,100 with a gain of 50,100 and he will be taxed accordingly

edgarina

But surely if he only owns a percentage of the property, just as if he had bought it with a partner, then it is not just him disposing of it, it is all the owners no matter how many there may be.

The percentage owner ship of the property would be sorted out legally prior to the sale and in this case he is gifting a percentage of his ownership to siblings which I understand is a recognised legal process hence the 7 year rule for such gifts. He is then only legally is entitled to a percenatge of the profit. When it comes to sale as he then only owns part of the property and can only legally recieve part of the profit, therefore only making him liable as far as CGT is concerned for his personal gain, in this case not enough to pay tax.

Surely it is possible to transfer part ownership of any asset to another party and upon disposal the money and any profit is divided accordingly, with any tax liablility also being shared.

ceeforcat

Even if this was feasible and I believe that it is not HMRC will challenge the gifting of a proportion of the property as simply an exercise to avoid tax. Would you be willing and able to prove otherwise when HMRC investigate the transaction, as they surely will due to the complexity of the Capital Gains calulation of the SA return? I will post the link to a previous thread on this.

cte1111

The sale of the property may well bring a gain of £10,000 only. However on the point at which he gifts part of the property to you and your siblings, he will have to pay CGT on the market value of the gift. You aren't just allowed to give away items to avoid paying CGT, apart from to your husband / wife / civil partner. And then other rules apply on the sale.

ceeforcat

Found it!

https://forums.moneysavingexpert.com/discussion/comment/33832129#Comment_33832129

00ec25

read the CGT basics guide especially bullet points at step 1
http://www.hmrc.gov.uk/cgt/property/calc-cgt.htm
1. the transfer by the father would be classed as a disposal even if he is gifting it ie you are not paying him anything at time of disposal)
2. you are all connected persons father/children but not husband/wife

as stated by others your scheme will not work becuase the disposal by the father immediately brings about a market valuation ruling becuase of the connected persons status
if father tries to stagger the transfers that could trigger an HMRC investigation and the outcome would be the same

edgarina

Thanks all,

Sorry for being stubborn.