Property outright and like to transfer to my sons

Wil7238

Hi, im over 60 and have a property outright, which worth 300k and I would like to give this to my two sons 50/50 each. How can i transfer this to them? What implication be to one of my son who already own a property with mortgage? Will they have to pay any tax even my property already outright? Please advise

paddedjohn

Wil7238 wrote: »

Hi, im over 60 and have a property outright, which worth 300k and I would like to give this to my two sons 50/50 each. How can i transfer this to them? What implication be to one of my son who already own a property with mortgage? Will they have to pay any tax even my property already outright? Please advise

Do you own another property or are you planning to still live in this one?

G_M

Unless both your sons live in the property it will not be their main residence, so they will be liable for Capital Gains Tax when they sell.

If you are 'giving' it to them, the property will also be included in your Estate's assets for Inheritance tax purposes if you were to die within the next 7 years.

If you continue to live there, and later need residential care, the localauthority would include the property as your asset when means testing you - see "deprivation of assets".

InMyDreams

Also, if you continue to live there, HMRC will consider you to be paying rent to your children at the market rate (even if you aren't). This means that they will have to declare the market rate and pay income tax on it at the relevant rate (even if you aren't actually paying them a penny).

See http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm for more on giving your house away.

Edited to add: OK, so I just read that link I posted. As I understand it, if you don't pay your children any rent, they don't actually have to declare any rental income for tax purposes. But then the seven year inheritance tax rule won't apply... in other words doing this won't avoid them paying any inheritance on your estate even if you live for more than 7 years.

In other words, if you are doing this so they can avoid inheritance tax, they will get stung for income tax instead (and capital gains if the property increases in value). They have a choice which they want to pay.

G_M

Inmydreams:

1) if rent is not paid, income tax is not charged!
2) If the house is 'gifted' (ie not sold), then the Inheritance Tax rules will apply (7 year rule). It would be irrelevant whether rent was paid - this would not affect the 'gift'.

Wil7238

I like to know once transferred, then do I need to move out or pay rent. Of course my sons will not accept my rent and the house is a gift from me to them. And I most likely be living with them from time to time.
If no rent then for inheritance tax purpose, will this be payable?

kingstreet

If you gift the property, then continue to live in it rent free, this is a gift with reservation and it never leaves your estate. The PET rules don't apply and you won't leave it IhT free if you die after seven years.

What are the major issues? Tax? Care fee funding?

It may be worth you considering a Family Estate Plan if it is for the latter and this will also ensure they keep their inheritance should they split up from their spouses after you are gone.

bee78

Hello, could someone explain 7 year rule, and how to get around it? I would like to know because one of my friend is in a similar situation. Help pls?

mjdh1957

It's very simple, if you give it and die within seven years, then it still counts towards your estate for Inheritance Tax purposes.

The way to 'get around' it is not to die within the seven years.

If you need better advice, then you might need a proper paid tax advisor.

00ec25

bee78 wrote: »

Hello, could someone explain 7 year rule, and how to get around it? I would like to know because one of my friend is in a similar situation. Help pls?

if you give away an asset that would otherwise form part of your estate at death (ie money, house, or any other form of asset), then, provided you no longer receive any benefit from that asset, AND provided that you live for another full 7 years, then the value of that asset is excluded from the total value of your estate at death (if you die between 3 – 7 years a sliding scale applies)

the important point to note is you cannot receive any ongoing benefit. It must be a clear gift. The most common failing is signing over the parent’s house to the children but the parents continue to live there – ie they continue to benefit from the asset so it is a gift with reservation and is not excluded from the estate.

Unrelated to IHT and the 7 year rule, but relevant to understand the other pitfall, is if you sell the property to your children but again continue to live there, this falls foul of the pre owned assets rule since again you are receiving a benefit. It is in those circumstances that the parent has to pay Income Tax if the parent does not pay rent to the child who is now the owner of the parents house.

InMyDreams

G_M wrote: »

Inmydreams:

1) if rent is not paid, income tax is not charged!

Correct. But if rent is not paid then it can't count as a gift (or at least it does, but 'with reservation of benefit' which means that even if you live longer than 7 years, Inheritance tax will still be payable on it). If you are trying to avoid inheritance tax, you will have to pay rent and the recipient will have to pay income tax on that (even if he subsequently gives the rent back which is what I meant by not paying rent).

2) If the house is 'gifted' (ie not sold), then the Inheritance Tax rules will apply (7 year rule). It would be irrelevant whether rent was paid - this would not affect the 'gift'.

It would affect the 'gift' because if rent is not paid, it becomes a gift "with reservation of benefit" which means there's no 7 year rule so it's still considered part of the deceased estate for inheritance tax even if it's been longer than 7 years.

Hope that clarifies what I meant. Sorry if I wasn't clear before.