IHT on parental second home

mpppen

Hi,

Talk about resurrecting old posts!

Anyway, we're still working on this and have found a way forward we believe.

My parents will gift us the property and have no further interest in it whatsoever. That way, we believe, we're fulfilling all the obligations of the Gifts without benefits.

My question is now about the CGT aspect of it.

I understand they need to pay CGT on the difference between the purchase price and the current market value (it has always been rented out).

1. Presumably they can deduct the amount spent on capital works (kitchen extension, new windows etc) ?

2. If yes, then they need to pay 18% and 28% on their respective halves on the difference between purchase price+capital works and market value. (one being a lower rate tax payer).

3. Are they then able to apply Gifts Hold-Over Relief on the transfer?

According to
http://www.hmrc.gov.uk/cgt/property/reliefs.htm

If you give away your property all or part of your gain may be postponed until the property is sold. In most cases the person you give it to will pay any Capital Gains Tax.

I can't find a clear definition on when one can, or can't, apply this.

Can anyone please expand on this.

If we can then I appreciate that us, as the new owners, will be liable for the CGT above from the original purchase price (+Works) to then market value at the time we come to sell.

THanks

PEN

PS. I acknowledge this is only guidance and that we will be talking to an accountant when it comes to it

00ec25

mpppen wrote: »

1. Presumably they can deduct the amount spent on capital works (kitchen extension, new windows etc) ?

correct

2. If yes, then they need to pay 18% and 28% on their respective halves on the difference between purchase price+capital works and market value. (one being a lower rate tax payer).

correct

3. Are they then able to apply Gifts Hold-Over Relief on the transfer?

3. NO
although you will find many posts telling prospective LL to approach letting property as a business, as far as HMRC is concerned, the letting of residential property (unless within a Ltd Company structure) is not a business asset and therefore holdover relief is not available as that is available only on gifts of....

http://www.hmrc.gov.uk/helpsheets/hs295.pdf

Hold-over relief may be claimed for:
• gifts of business assets
• gifts of unlisted shares in trading companies etc.
• gifts of agricultural land
• gifts which are chargeable transfers for Inheritance Tax purposes
• certain types of gifts which are specifically exempted from Inheritance Tax.

Hold-over relief is available on the disposal of a business asset. This is an
asset which is used for the purposes of a trade, profession or vocation

residential property letting is not classed as a trade by HMRC for various reasons so as to avoid opening pandora's box on how to handle trading losses

I get the feeling you are still trying DIY tax planning as even a cursory google would have found the above reference and a tax practitioner would have taken less time than me to tell you: not possible.

if you go back and read your HMRC link again you will see that the section on gifts hold over relief that you spotted is a sub section of the Property used for business purposes main heading - the holdover applies to business use which I agree is not clealry set out on that page but that is why HS295 exists