Can I give my rented house to my son?

My_perfect_cousin

...and if so, what are the implications?

I am a higher rate tax payer - so is my wife. My wife and myself lived in the property for a few years up to 1991. The house is in my sole name. My son was born in 1993. The balance on rent is approx +£2000 per year.

Our home (since 1991) is in my and my wife's names as joint owners.

My son is a higher education student and unlikely to be in the higher tax bracket for some time - I think!

all wisdom welcomed!:)

Annisele

My_perfect_cousin wrote: »

The balance on rent is approx +£2000 per year.

Does that mean there's a mortgage on the property? If so, it'll have to be paid off before you can gift it to anybody.

Potentially your son could purchase the house for the amount of the outstanding mortgage (i.e. you gift the rest of the equity to him), but as a student he'll likely struggle to raise a mortgage.

My_perfect_cousin

yes - there is a small mortgage on the rented property - interest only

The mortgage is due to end in 2016

booksurr

implications:
- mortgage must be cleared if ownership changes, either you pay it off yourself using eg own savings or son gets his own funds and "buys" it from you. Watch out for any early redemption charge!

- sell or gift to son is a transfer to a "connected person" and so triggers Capital Gains Tax disposal for you. CGT payable based on gain in value since purchase minus exempt period whilst lived in minus letting relief. Given you moved out in 1991 good to high chance CGT would be payable and as a HR payer it would be at 28%

- if son pays less than market value, the discount is a gift for the purposes of your inheritance tax liability - if there is one of course!

- rental income would be his and his alone, so he may or may not pay income tax depending on his total income obviously.

- if you want to reduce the amount of income tax you currently pay on the rental profit it would be more efficient to gift a share of the property to your wife assuming she is not also already s HR tax payer. Such a gift would be exempt from CGT although she would not inherit your tax relief so when you finally sell you would need to rebalance the ownership back to favour you

[Deleted User]

If its an interest only mortgage ending in 2016 aren't you actually transferring the debt to your son rather than simply 'gifting' him the property? I would have thought arrangements would have to be made to clear the mortgage first.

AdrianC

My_perfect_cousin wrote: »

yes - there is a small mortgage on the rented property - interest only

The mortgage is due to end in 2016

And how are you repaying the outstanding mortgage capital?