Tax Considerations when gifting property from father to son

jezlinho

Hi, I am new to this forum. I was hoping if any tax experts can advise me on the following scenario?

I am a non-UK resident (and non-UK domicile) though I lived in the UK until I was 25 and moved abroad. My father who has always been a non-UK domicile has decided to transfer a UK property (which has no outstanding mortgage and is tenanted) to me by way of gift. I intend to move back to the UK in 7-8 years’ time.

I was wondering what taxes there are to consider when he transfers this property to me by way of gift.

From what I understand the taxes are stamp duty, inheritance tax and capital gains tax. Are there any others I should be considering?

Stamp Duty: None should be payable because there is outstanding mortgage.

Inheritance tax: 7 year rule applies so that as long as my father survives another 7 years, no inheritance tax is payable.

Capital Gains tax: Please confirm my understand: I would be taking my father’s tax base. However, my father has been a non-UK domicile and also I only acquire the property as a non-domicile and so no capital gains tax is payable. Would I have had to pay capital gains tax on a gift if my father had been a UK domicile? Also would I have to pay capital gains tax if I transfer to my son? I assume that only post-April 2015 gains are relevant since HMRC has now decided to charge capital gains tax on non-domiciles and there is no way of avoiding this (and non-domiciles do not have to pay capital gains for pre-April 2015 gains).

da_rule

Stamp Duty: No liability as it is not a sale for money or money's worth.

You mention that the house is currently rented. There may therefore be a liability to income tax.

The CGT (Capital Gains Tax) understanding you have appears to be correct. However, the gain is calculated at the time of disposal. So if you are back in the UK when you sell the property then there may be a charge to CGT. As this is a gift the value of the purchase will deemed to be the market value of the house on the day of transfer.

You also mention there's a mortgage. Do you have the mortgage company's permission to change the owners details?

getmore4less

non dom/resident you need to check the taxation in the countries you both are dom/resident

You need to check all the taxes carefully as current status will impact them all.


if there is a mortgage he can't just gift to you, I assume you mean no mortgage

jezlinho

Thanks for the feedback & advice to those who have replied. There is NO outstanding mortgage on the property.

The other country is Hong Kong (and the HK government care about assets outside of HK territory).

@da_rule: I understand that gains are calculated at the time of the disposal. But like I said, since my father has always been a non-resident, he does not pay capital gains tax on disposals. For me, I would only be paying capital gains tax for any gains post-April 2015 (like a UK resident would) due to the changes in charging CGT for non-residents. Can you answer this question: if my father were a UK resident, for capital gains tax purposes therefore, would he have to pay capital gains tax on a gift of the property based on the market value of the property to his son even if no money is transferred and the property is not mortgaged? This seems extremely punitive - I struggle to believe that all UK residents when gifting property to their children before death have to pay capital gains tax @28% to HMRC.

da_rule

Yes he would unless it was his main home. There is no CGT on selling your main family home (unless it is also used for business or is over 0.5 hectares in size). There is a relief, called hold-over relief. This means that your father would not pay the CGT but you would when you dispose of it. The only difference here would be that the purchase price will be the price your father paid for it when he purchased it.

jezlinho

Thanks da_rule for the reply.

I do know about principal private residence relief. But he has more than 1 property and this is one of the properties which he is transferring to me. So from what you say, it would be rather problematic for a UK resident with several properties and several children to whom he wants to transfer his properties; he would have to pay capital gains tax on all of his non-principal private residences when gifting them to his different children (other than for the principal private residence). Highly punitive!

Also how do you obtain PPR relief if you don't even live in the country? Would it be to show that it was his holiday home?

da_rule

Holiday home is still not a principle residence. Depending on the value of the properties it might not be worth transferring them as paying the inheritance tax bill on death may work out cheaper.

da_rule

Or use hold-over relief to make the next person liable for all of the GCT.

jezlinho

Ok so holdover relief is perhaps something that I would consider given that we do not wish to sell the property to an outsider.

From what you say, I also gather that PPR relief is only available therefore to a UK resident. Is that correct? Thanks!

da_rule

Yes it is. As you cannot be a non-dom and have your principle residence in the UK.

00ec25

da_rule wrote: »

Or use hold-over relief to make the next person liable for all of the GCT.

hold over relief is not available on the letting of residential properties as they are not classed as business assets
http://www.hmrc.gov.uk/cgt/property/reliefs.htm