Buying property from parents - tax implications

Cillit_Bang_2

Hi all - first post so apologies if this has been discussed previously (I couldn't see that it had).

My parents are concerned about their inheritance tax position. They own a small to medium sized block of 17 flats, worth between £40k and 60k. This is their only asset and serves as their pension, puts them well above the IH threshold, and is clearly not a very liquid asset. There isn't a lot of disposable capital aside from this asset, so they have been unable to follow the standard methods of giving £3k annual exempt gifts etc.

I am in a position to buy one of the flats from them (I would haggle hard) in order to help them/me reduce the tax liability. I'd be happy to let them still have the rental income (as I would be receiving an exempt gift), so their rental pension would be unaffected. What I don't want to do is further complicate the tax position or incur any other additional tax. Does anyone have any experience of this, or obvious flaws in my plan?

Thanks in advance.

nomunnofun

There are many more expert than me on this forum but the obvious 'flaws' to me:

If you are buying the flat at market value it is not a gift. Their inheritance tax position would surely not change as they would have the additional cash. In addition they would pay tax on the sale, either CGT or on trading profits.

If you own the flat you cannot 'let them' still have the rental income. You own the flat, you receive the rental income and must inform the taxman accordingly.

CLAPTON

buying the flat?
receiving a gift?
paying rent?

all a little confusing

Cillit_Bang_2

Okay, take your point on the rental income - thanks for pointing that out, I'd have to think about that a bit more.

The point of buying the flat would be to improve my parents' liquidity, enabling them to make IH exempt gifts to my brother and myself. They have expressed a wish to do this but have lamented their lack of available cash. I wanted to check whether there was an obvious IH problem with this before taking professional advice.

I imagine the expenses of doing this will probably outweigh the tax savings!

CLAPTON

why don't they just sell some of their flats to gain liquidity?

do you actually want the flat to either live in or to rent out?

Cillit_Bang_2

They want to keep the block in the family. My dad built them and I think he sees it as part of his legacy.

I don't live in the area so would have to rent the flat out.

Savvy_Sue

Given the sums of money involved, I'd think it would be worth taking professional advice. Do your parents have an accountant?

Sw10

Cillit_Bang wrote: »

They want to keep the block in the family. My dad built them and I think he sees it as part of his legacy.

I don't live in the area so would have to rent the flat out.

Are they higher rate tax payers for income tax purposes? If so, setting up a company and transferring the flats to it might substantially improve their income position given the tax advantages of paying corporation tax and then paying themselves with dividends.

They could then gift some of the shares in the company to you as PETs to reduce the value of their estate.

If your parents wanted to retain the net rental income they could create two classes of shares - income bearing and non-income bearing. They would retain those that produce income and gifts the ones that don't to you.

Cillit_Bang_2

Thanks for all the replies and great tips. It seems like there is a seed of an idea here, I'll take some professional advice as a next step.