Transfer of property

Kwakquack

Hi everyone, I wondered if someone out there may be able to advise me on the implications that may arise from transferring a house.
Basically my parents sold there house in Yorkshire and bought a property in Sussex to be nearer the family (the house was bought outright - so no mortgage). The solicitors in Yorkshire suggested that the new property in Sussex could be put in my name, making me the Landlord and my parents the tenants (non rent paying), which they decided to go ahead with, so as of 13th September 2010 I became the leaseholder.
They have now decided that they would like to transfer the ownership back to themselves and have instructed a solicitor to deal with it. (There has been no rift in the family to cause this situation). I have seen my parents today and they have given me a land registry transfer form (TR1) to sign. I am more than happy to do this, however having researched a few websites (HMRC etc, unfortunately the info is way out of my comfort zone) I am slightly worried if there are any possible implications that may arise in the future (inheritance tax, capital gains tax etc, and also on one website it mentions that 'gifting away your home is an irrevocable gift and cannot be taken back'!!). I may be worrying unnecessarily - but I'm a bit like a fish out of water when it comes to this sort of stuff! Any advice that you more knowledgeable people out there might be able to offer would be much appreciated.
Thanks in advance Kwakquack

Pixie5740

For whatever reason your parents gifted you their house back in 2010. It's now your property and you don't have to give it back to them if you didn't want to but you do.


There might be CGT due as this property isn't and has never been your main home. Even though no money is changing hands since CGT would be based on the difference between the purchase price and the value at the time of the transfer.

IHT might be an issue when your parents die but I don't think that you owning the property would circumvent that. It would have to have been a gift without reservation but it wasn't as you were gifted the property so your parents could live in it.


The whole thing is a bit weird really. It would have been far simpler all round if they had never given you the property.

G_M

Kwakquack wrote: »

Hi everyone, I wondered if someone out there may be able to advise me on the implications that may arise from transferring a house.
Basically my parents sold there house in Yorkshire and bought a property in Sussex to be nearer the family (the house was bought outright - so no mortgage). The solicitors in Yorkshire suggested that the new property in Sussex could be put in my name, making me the Landlord and my parents the tenants (non rent paying), which they decided to go ahead with, so as of 13th September 2010 I became the leaseholder.
So the new property is a flat? leasehold house?
Does the lease permit the leaseholder to rent the flat out?

They have now decided that they would like to transfer the ownership back to themselves
They can't. It's not their property. Only you can decide to do this.

and have instructed a solicitor to deal with it. (There has been no rift in the family to cause this situation).
They can't. It's not their property. Only you can decide to do this.

I have seen my parents today and they have given me a land registry transfer form (TR1) to sign. I am more than happy to do this, however having researched a few websites (HMRC etc, unfortunately the info is way out of my comfort zone) I am slightly worried if there are any possible implications that may arise in the future (inheritance tax, capital gains tax etc, and also on one website it mentions that 'gifting away your home is an irrevocable gift and cannot be taken back'!!).
Indeed. They gifted the property to you. It cannot be 'taken back'. Though of course you yourself can now decide to gift it to them if you wish. As for Tax, see below.

Since you neer used the property as your main residence, Capital Gains Tax applies. Any increse in the value of the property between the date you took ownership and the date you pass ownership on, is taxable. You have an allowance of £11,000 (so if the value has increased by less than that there is no CGT to pay). See HMRC here.

If you make a gift, and die within 7 years, the gift will be included in your Estate for Inheritance Tax purposes. (this applies equally to them when they gifted it to you).

The whole set-up seems wierd:

1) why did the original solicitor recommend the property be put in your name not theirs? What was the objective? To avoid Inheritance Tax? To avoid future Care Home fees? Something else? Either way, it seems poor advice.

2) Why do your parents want the property back in their names? What is their objective now?

3) was there some specific reason they wanted this 'gap' in ownership? ie to have a period of 5 years where they did not own a property or had reduced assets (were they going bankrupt at that time for example.....?)

Before doing or signing anything, I advise you to

a) get legal advice. In any case, if selling a property (even if gifting it for £0) you should get advice.

b) make sure you fully understand what is going on, and why. I don't know your parents of course, but my instinct says you are being used in some way. The fact that

They have now decided....(they) and have instructed a solicitor to deal with it. (There has been no rift in the family to cause this situation). I have seen my parents today and they have given me a land registry transfer form (TR1) to sign.

indicates that they are calling the shots ad relying on your niavity and family connection simply to do as you are told.

Repeat: You've owned the property for 5 years. The value will have gone up. You will have to pay Capital Gains Tax.

edit: it also seems wierd that they are giving you the TR1 to sign. I would expect their solicitor to send it to you (or more usually, to your solictor). I wonder if their solicitor (if he exists!) knows what is going on and why............

Kwakquack

Hi all - many thanks for getting back to me regarding the issue over the transfer of the house. I will try and answer some of the observations made:

Many thanks Pixie5740 - yes I also wish they had never given me the property. Would it be my parents that would be liable to CGT or me?

G_M - the property is a house (I am the leaseholder at present)

Not sure if the following helps, this is the wording used on the lease document set up on 13th Sept 2010:

1. THE Landlord hereby lets to the Tenants (house name/address/etc)
aforesaid ("the Property")

2. THE Tenants or the survivor of them shall be permitted to reside in the Property free of rent until the death of the survivor or until both or the survivor cease to live in the Property and neither has the intention to return to it and until such time the Tenants or the survivor of them shall be responsible for payment of all outgoings at the Property including Council tax and costs of maintenance and repair

3. THE Tenants shall not be deemed to have no intention to return to the Property until they or the survivor of them or some person lawfully authorised to sign on their behalf has signed a letter that they or the survivor does not intend to return to it

Regarding the initial advice from the Solicitor in Yorkshire, my parents inform me they are not really sure why they decided to go ahead with the Solicitors advice - I wish they never had - all sounds a bit of a minefield!

As for wanting the property back in there names, I was informed that it would make life easier for them when it came to supplying information, when filling in forms when a question would ask if they were homeowners (sorry I'm a bit vague on this one)

With regards to the gap in ownership - again no idea - but definitely not going bankrupt.

I have been in contact with my accountant for some advice, but unfortunately he is not in the office today, so hopefully will be in contact with him tomorrow.

Many thanks Kwakquack

Pixie5740

You would be liable for any CGT as you are the current owner.


It might be worth seeking legal advice of your own as well as that of an accountant. Also check out IHT implications.


I'd also try and work out exactly what their motivation is for wanting ownership of the property again. If it's just a case of ticking a different box on a form then it seems a bit daft to potentially land you with a CGT bill.

G_M

You do not need accountancy advice - you need legal advice! On both

1) the lease. What type of lease it is? how enforcible/valid? What are your responsibilities as landlordlord? What rights you/they have?

Was the lease Executed as a Deed? Were your signatures witnessed? This is not an AST (Assured Shorthold Tenancy) and I suspect that as there is no 'consideration' (rent) it is not a contract at all - so must be a Deed. But if not Executed properly as a Deed, it may just be a worthless piece of paper.....

You need legal advice from a solicitor experienced in these types of tenancies/arrangements.


2) the Transfer. Whether it is wise. What are the implications for you? Why it is being done. For this, make sure the solicitor is experienced in conveyancing AND in related tax issues.

So find a solicitor who is capable in all these areas.

You own the house so you pay any CGT on the increase in value or your house.

Kwakquack

Hi all again

Had an email from my father - he has spoken to his solicitor and this is the info he was given (below), although as he says he was not to sure if he has asked all the questions required:

The worst senario is that you would have to pay capital gains tax on the property as and when sold, but as I read the info; exactly the same thing would apply if the house was willed to you and you then sold it, it seems like the same difference to me!!.
Capital gains tax would apply to any profit made over and above what we paid for the house less the allowances which are:-
5 April 2013 - 6 April 2014 £10900
5 April 2013 - 6 April 2015 £11000
Interest rates are:- @ basic rate tax 18% - 28% depending on size of gain and taxable income
@ high tax rate 28%.
So a profit of say £11000 means no CGT with £180 for every additional £1000 pofit.

However as I understand it, I would be liable for CGT from September 2010 when the house was transferred into my name to the present date, so just over 4 years.

Look forward to hearing from you all again - giving me a headache!

Cheers Kwakquack

G_M

Kwakquack wrote: »

Hi all again

The worst senario is that you would have to pay capital gains tax on the property as and when sold,
correct
but as I read the info; exactly the same thing would apply if the house was willed to you and you then sold it,
No. Because if sold after inheritance there would be no gain so no CGT (hough Inheritance Tax might apply).
it seems like the same difference to me!!.
Not in the least

Capital gains tax would apply to any profit made over and above what we paid for the house
does he mean if he willed it to you? If so, CGT does not apply, Inheritance Tax applies
less the allowances which are:-
5 April 2013 - 6 April 2014 £10900
5 April 2013 - 6 April 2015 £11000
CGT allowances are not cumulative - you get the allowance for the year of disposal of the asset only. But the gain on which you are taxed is the difference between buying/selling.

So
a) let's put aside this red herring about willing it to you, since it is already yours and your parents are not deceased
b) if you give it away now, you will get the 2014-2015 CGT allowance (£11,000) to offset against the increase in value between when you acquired it (2010) and now (2015). Allowances for previous years (2010,2011. 2012, 2013, 2014 are all irrelevant.
Interest rates are:- @ basic rate tax 18% - 28% depending on size of gain and taxable income
@ high tax rate 28%.
So a profit of say £11000 means no CGT with £180 for every additional £1000 pofit.
No. At 28% Hgher Rate, each £1000 = a bill of £280

Using the Halifax National Average price index, a typical House price went from £169K in 2010 to £183K = a gain of £14K

For a more expensive property, or a property in an area with greater house price increases, the gain and tax will be greater.

However as I understand it, I would be liable for CGT from September 2010 when the house was transferred into my name to the present date, so just over 4 years.
Yes

You've got a headache? How do think I feel?

If I were you, I'd:

1) not sign the TR1
2) keep the house
3) start charging rent on it (to cover your future CGT if you do eventually sell it)
4) move into it yourself at some point in which case it becomes your main residence and then there is no CGT to pay when you sell....

booksurr

GM has explained the CGT position, however just to add to that, if you do decide to follow your parent's [STRIKE]instructions[/STRIKE] wishes and transfer it to them, be aware that the value you use must be the open market value for which you will need a written valuation from a professional valuer or get say 3 - 4 EA written valuations "priced for a quick sale", ie a bit below what they would start marketing it at for a normal sale. This is because you are related and so fall into the "connected person" rules re CGT


Also, you may wish to look at the possibility of suing your parent's solicitors for giving very bad advice. Your parents sold their house, they bought another one and then deliberately gave that to you in return for documented proof of being able to live in it rent free. That is the exact circumstance where the Pre Owned Asset Tax rules apply.

Under a POAT if the house would have produced more than £5,000pa in rent on the open market then, unless your parents paid income tax on the benefit in kind value that represents, they have committed tax fraud. POAT is a somewhat specialist area, but for a solicitor not to know about it and, moreover, to actively promote the exact circumstance it applies, is appalling
http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM44001.htm

Kwakquack

Hi all you helpful people - many thanks for all the advice.

I have now contacted a conveyancing solicitor as suggested.

He (like everyone on the forum) has also recommended that I do not sign anything and that initially to get the ball rolling that I need to get from my parents solicitors (in writing)

1. Confirmation to me of no tax liability on my part

2. I require indemnity against any possible tax liability

He also suggested that my parents solicitors should be shot!

Will let everyone know how things proceed

Cheers Kwakquack

Mojisola

Kwakquack wrote: »

He also suggested that my parents solicitors should be shot!

Would your parents be willing to change solicitors?