Transferring second home to son

Linton

EdGasket wrote: »

Ref donstonh "Its classed as a disposal and you pay on against the gain at market rates. You say there is no gain. If so then you would not pay CGT. However, if you retain a benefit to that property (say if its a holiday home) then you dont avoid IHT either."

When I say there is no gain I mean I am giving it away so I will not be making any profit; in fact it will in effect be a £50K loss to me personally however it would seem I will get taxed for CGT on a fictional £70K profit.

Suggest you think about the implications of not charging you CGT. If there was the ability to give ones assets away without CGT, what would stop you giving the property to your son and then your son giving it back to you, thus losing all tax liability on the way? Alternatively HMRC would need to keep track of all such property and the CGT charge outstanding on it as it passed from person to person.

benalder284

Currently acting as power of attorney for an elderly relative who will probably now use all her assets to pay for residential care - I am sure both she and I (who would have stood to inherit any residual estate) would rather that she had as was good quality care as we can afford even if that leaves no inheritance.

As regards whether that is fair or not is frankly irrelevant - their is little political mileage in increased taxation to pay for the additional costs that will come from demographic changes on this issue and the recent fudge over the implementation of the Dilnott Report recommendations clearly shows that nothing will change significantly any time soon. As others have said I would suggest that you just thank your lucky stars that you have funds IF you need to pay for such care and won't be left at the mercy of the state.

CLAPTON

assuming the property was never your actual residence the cgt will be

120,000 - 50,000 - buying/selling costs (say3k) = 67,000

less your cgt allowance 10,600 = 56,400

so cgt will be between

18% and 28% of 56,400

Thrugelmir

EdGasket wrote: »

When I say there is no gain I mean I am giving it away so I will not be making any profit; in fact it will in effect be a £50K loss to me personally however it would seem I will get taxed for CGT on a fictional £70K profit.

If what you proposed was tax law there would be no point in CGT. As you could gift assets away then be passed the cash back when sold.

There's nothing new in this. Has been the case for many many years.

Thrugelmir

EdGasket wrote: »

No, hard working people have what they've earned taken away from them to pay for lazy scoundrels who've spent their whole life on benefits or pi**ed up everything they've earned. I am sorry to say it seems to work like that!

Increase in value of property owes nothing to hardwork. You can thank the bankers for the HPI boom.

EdGasket

Ok, assuming I keep the second home until I die, then on death, is both Capital Gains Tax AND Inheritance tax payable? If so which one do you pay first and can you deduct that tax from the value when working out the other tax?

Another idea: Suppose I legally grant my son a lifetime right of tenancy in my second home. Then on my death, that second home will clearly have a much lower value with a sitting tenant paying negligible rent compared to if it had vacant possession. Therefore can the IHT (and CGT?) on my death be reduced because the property would be valued at a very low value with a sitting tenant, possibly even less than what I paid for it ?

cte1111

If the property passes to your son on your death, then if your total estate is over the inheritance tax limit (£325,000), then there will be only IHT to pay.

The whole sitting tenant question is a bit dubious, as the beneficiary themself being a sitting tenant would not reduce the value of the property, e.g. he can't claim that his house is worth less because he lives there already I don't think.

"Tax at the time you inherit
When you inherit an asset from someone who's died, there's no Capital Gains Tax to pay at that time.
There won't be any Inheritance Tax due either if the whole of their estate is worth less than the Inheritance Tax threshold (£325,000 in 2011-12 and 2012-13)."

http://www.hmrc.gov.uk/cgt/intro/gifts-inherit-divorce.htm

Linton

EdGasket wrote: »

Ok, assuming I keep the second home until I die, then on death, is both Capital Gains Tax AND Inheritance tax payable? If so which one do you pay first and can you deduct that tax from the value when working out the other tax?

Another idea: Suppose I legally grant my son a lifetime right of tenancy in my second home. Then on my death, that second home will clearly have a much lower value with a sitting tenant paying negligible rent compared to if it had vacant possession. Therefore can the IHT (and CGT?) on my death be reduced because the property would be valued at a very low value with a sitting tenant, possibly even less than what I paid for it ?

When you die only inheritance tax is payable. You son would inherit a house free of CGT liability.

atush

If your care home fees are paid by the sale of the holiday property. then your son could inherit your main residence or vice versa. That way he will get one, and you will have enough to fund future care fees.

EdGasket

atush wrote: »

If your care home fees are paid by the sale of the holiday property. then your son could inherit your main residence or vice versa. That way he will get one, and you will have enough to fund future care fees.

The second home is not a holiday home, it is owned by me and lived in by my son at a nominal rent.
If I keep both my main residence and my second home, what is to stop both homes being forcibly sold to pay for care home fees before I die leaving my son homeless?