Can we transfer house to children so that they can make use of their tax allowance?

jesmech

We have a house that we rent out, its our old house that we moved from 7 years ago and it currently makes a profit of about £350 per month (it is mortgaged but still has more incomings than outgoings). We have two young sons (5 and 2) whom we plan to give the house to when they are older to either live in/continue to rent out or fund university etc. Are we able to transfer ownership (or put into trust?) to them now or perhaps do something to put the rent into their savings accounts so that we/they can make use of their tax allowance?

ben.bayliss

You'd need to speak to a lawyer to make sure you set up the right kind of trust as the government have been clamping down on these for a while now. Also then realise that if you did gift the property to the Trust they would own it, forever. You wouldn't be able to retain any claim in the property, or get any of the income for yourselves. The Trust would be the landlord, so might need some form of insurance etc.?

If it's mortgaged, then that strikes me as also being a bit of an obstacle. How can you give something away which you don't wholly own. The kids are obviously too young to have the mortgage in their name and do banks lend by mortgages to Trusts with no guaranteed income?

It might end up that the administrative cost of running and operating the Trust would outweigh the benefits of paying a bit less tax now.

heretolearn_2

I can't imagine any mortgage company allowing under 18s to have a mortgage, and definitely not at their age. If you transfer it, it becomes theirs totally, with all legal and financial obligations of the owner, it isn't something you can just do on paper to play with your taxes. Even if you owned it outright, if you give it to them, then all the income is theirs as well and you can't just take that.

00ec25

minors (ie <18) cannot own property in their own names so the easy option is a complete non starter - in addiiton the mortgage issue is also a stopper

However, it may be possible to set up a trust so the trust becomes the beneficial owner of the rental income stream - get professional advice

John_Pierpoint

Transferring it, other than between spouses (& legal partners) is likely to trigger a CGT charge?!?

BoGoF

John_Pierpoint wrote: »

Transferring it, other than between spouses (& legal partners) is likely to trigger a CGT charge?!?

Correct. It has so many pitfalls and for the sake of £350 month profit it's seriously not worth contemplating it.

CLAPTON

John_Pierpoint wrote: »

Transferring it, other than between spouses (& legal partners) is likely to trigger a CGT charge?!?

a transfer to a trust would count as a disposal for cgt purposes
however the OP said he once lived there so he would be eligible for PPR and letting relief so the cgt might be low or zero. So from a cgt point of view the sooner he 'disposes' the better

jimmo

The simple answer is No.
Under the Settlements legislation any income released from such a trust will be your income for tax purposes whilst your children are unmarried minors.
http://www.hmrc.gov.uk/manuals/tsemmanual/TSEM4300.htm
If you owned properties worth millions and could afford to let the rental profits accumulate within the trust until your children become adults there could be tax efficiencies with quality professional help.