House Gift tax implications

misterk_2

I know very little about the how the taxing system works in relation to capitial gains tax or inheritance tax so any info on this issue will be greatly appreciated.

Right, my dad would like to give me a house that he owns, i suppose as a gift in tax terms, what are the tax implications of this? Do i need to pay any tax? How much? Whcih types CGT/IHT?

Once again any info would be greatly appreciated.

CLAPTON

he can give you the house without any immediate tax implications for yourself.. you just say thanks dad.

however, if it is a house that is not his main residence then it counts as a disposal from his point of view and so he is liable for capital gains tax.

if he dies within 7 years then the house may be subject to inheritance tax if his total estate (including the house) is over the then IH limit.

i am assuming that the gift is one without any strings.. like he is not going to live in the house himself.

misterk_2

Thanks for that Clapton, thats very useful.

I live in a house with my dad, the house he wants to sign over to me is another house that he owns so thats not his main residence, so in that case his liable for capital gains tax right? If so how much would that be? If its a lot, is there any way around it? Finally the hosue would be without any strings.

Thanks again for the information you provided.

CLAPTON

the amount depends upon

when he bought it
at what price
what the current price is
is the ownership soley his or with his wife

there are various reliefs and allowances which will reduce the amount paid (or even reduce it to nothing)

misterk_2

Clapton,

Thank you for that information.

He bought the house in the early 1980s (about 1984) for £10,000. The current estimated price is about £150,000. The house is currently in the name of him and his wife.

What reliefs and allowances can he get, i wasnt aware of any? Thanks.

silverchamp

Firstly, there is "allowable expenditure," which as previously stated includes the cost of acquiring the property (here £10,000) and also any subsequent expenditure that has been spent on enhancing or maintaining the value of the property. Furthermore, all of the costs associated with transferring title in the house to you will be discounted too.

So the calculation looks like this:

Purchase Price
LESS Disposal expenditure
= Net sale proceeds
LESS Initial expenditure
LESS Subsequent expenditure
= Gain.

You will then get the benefit of Indexation Allowance which removes any gains that are attributable to inflation out of the calculation.

You then get the benefit of Taper Relief. Given that the house has been held for over 9 years since 1st April 1998, your Dad will only have to pay 60% of sum due.

You would then subtract £8,800 from that sum as this is the current rate for the "annual exemption" for CGT.

Tax will then be payable at your Dad's rate of income tax.

Note that this is generic advice only and I would recommend that you find yourself a good tax lawyer/accountant who can navigate you through this in much better detail.

CLAPTON

silverchamp has given a good overview there.

your parents will be able to substantially reduce the CGT by using Indexation Relief and taper relief. in addition if the house is held in their joint names they can both offset their yearly CGT yearly allowance (now £9,200) against the 'disposal' gain.

try reading

http://www.hmrc.gov.uk/cgt/index.htm

misterk_2

Thank you silverchamp and CLAPTON for providing me with some guidance it all is begining to get a bit complicated, we were in contact with a solicitor at first he said it was a fairly straightforward transfer when it came down to paying the fees and us asking for any tax implications he only then decided to tell us that there may be some tax implications but could give us any satisfactory guidance!!!

Anyway, just a few quick queries if either one of you could answer these please:

firstly as the house is jointly owned by my parents does that mean the CGT allowance is doubled ie. £18,400?

secondly, as neither of us live at that proeprty does that affect anything?

thridly, if in the past that property has been used or still is being used, as a business in tax terms ie. rented out does that have an impact?

CLAPTON

just to say that it may be you have nothing to pay after all the allowances but it need working out properly

anyway
firstly, yes both your parents can use their allowances so making 18,400 (assuming they haven't used their allowances elsewhere)

secondly... no makes no difference

thirdly.... not sure