Building on Land Owned by Parents...

Chorlie

Hi,

Not sure if this is in the right area but I'll give it a go....

If my father had his own business before retiring and still has the land so therefore making it a Brown Field site.

If he was to gift this land to myself & sister so each of us could build our own homes to live in (if we could get planning permission etc).

If my father should die or have to go into a care home, how would this giving of land be viewed for tax / care home costs etc. Could we be forced to sell our new homes to pay for these cost / taxes.


Thanks

davidmcn

Land registered in his sole name as an individual? Assuming it is:

• He'd be liable for Capital Gains Tax
• No, nobody's going to make you sell the property after it's yours - but he might still be deemed to own it for the purpose of calculating his assets in some circumstances.

He should really get professional advice about the implications for him.

G_M

Chorlie wrote: »

Hi,

Not sure if this is in the right area but I'll give it a go....

If my father had his own business before retiring and still has the land
Owned on what basis? Freehold? Leasehold?
so therefore making it a Brown Field site.

If he was to gift this land to myself & sister so each of us could build our own homes to live in (if we could get planning permission etc). how does this question end?

If my father should die or have to go into a care home, how would this giving of land be viewed for tax / care home costs etc. Could we be forced to sell our new homes to pay for these cost / taxes.


Thanks

If the land is gifted, and has a value greater than £3000, then if he died within 7 years it would be included in his Estate for Inheritance Tax purposes (though on a sliding scale as the 7 years progress).

You might have to sell it if there was no other way to pay the Inheritance Tax, though this seems unlikely.

If it is gifted and he goes into a care home, the local authority might deem it 'deprivation of assets'.

It could then be included within his assets (even though now registered in your names) so that he would not qualify for Care Home Funding. His care home would then need funding privately, either from his other assets, or your savings, or ultimately you might have to sell the property ( or see him turfed out onto the streets).

Chorlie

G_M wrote: »

If the land is gifted, and has a value greater than £3000, then if he died within 7 years it would be included in his Estate for Inheritance Tax purposes (though on a sliding scale as the 7 years progress).

You might have to sell it if there was no other way to pay the Inheritance Tax, though this seems unlikely.

If it is gifted and he goes into a care home, the local authority might deem it 'deprivation of assets'.

It could then be included within his assets (even though now registered in your names) so that he would not qualify for Care Home Funding. His care home would then need funding privately, either from his other assets, or your savings, or ultimately you might have to sell the property ( or see him turfed out onto the streets).

The land is Freehold, he Inherited it 50yrs+ ago and converted the old building (he bricked round an old farm barn) to make it into his workshop which he run his business from until he retired.

In short; I'm disabled live with my parents in the family home, but it's a house and it's not easy for me these days and if anything happened to them (they die) I couldn't cope, so lately talk has turn to me building a bungalow adapted for my need on part of the land and if she wants to my sister to do the same (she rents a place at the moment) and to have someone close by if I need anything / help in the future; this all depends on planning permission, what / where we can build on the site (ie if only on the footprint of the current building, which would mean my sister couldn't build a place) and costs (if I and / or my sister can afford it)...it's all very very early stages.

However the thought did cross my mind of the gifting of the land, I know about the 7yr thing but it's all the possible other things relating to future possible taxes or care costs if anything should happen within the 7yrs.

I'm looking from things relating to my future, it's not about trying hide / move assets, it's if I spend my money building a place I don't want to be in a worse place a few years down the line were I have to find more money to pay taxes / costs, because the only way for me to do that would be to sell the bungalow. If that's going to be the case I need to workout possible cost before we do anything so I can either budget for those or decide that another option will be better ie a ground floor apartment (but that wouldn't fully meet all my needs that a purpose built bungalow would).

I guess I could buy the land off him, but if I paid less than the market value I'm guessing the difference will be viewed as gift, so the above would still apply. I'd have to pay him the market value, but of a brown field site, a commercial premises or a building plot/s (There is no planning permission), the current building is now old, so I'm not sure what's it's worth or how you'd value it so there isn't any comeback. Than you'll looking at Capital Gains Tax for him and the added costs to me which I wouldn't be able to afford...so I'd be back to square one.

I just see an opportunity to get what I need for my long term future, but I can also see it all falling down around me if I did; like I said it's all very early stages and I'm trying to weigh up all the pros and more so the cons before doing anything.


Thanks for all you advise so far.

G_M

Apart from Inheritance Tax (which you've received advice on) and Deprivation of Assets re care costs ((which you've received advice on), the only new concern you've mentioned is Capital Gains Tax.

I don't see how CGT would apply. Provided you each live in whichever property you own (either before or after selling/gifting/building), there would be no CGT liability.

davidmcn

G_M wrote: »

I don't see how CGT would apply.

It's something dad would need to consider.

booksurr

G_M wrote: »

I don't see how CGT would apply. Provided you each live in whichever property you own (either before or after selling/gifting/building), there would be no CGT liability.

it may apply since it is more than likely the land being gifted (or sold for that mater) is not covered by the father's private residence relief since that is limited to "garden" land of no more than 0.5 hectacre.

OP's parents live on a farm, so the bit of land being transferred may either be agricultural land or as implied, brownfield industrial land or the land designated as being the "farmhouse" may be more than 0.5 in area and so splitting any of that off is a CGT transaction

in summary
- OP will not be liable to any tax themselves
- the parents will need to live 7 years to avoid IHT gift rules
- the parents will be exposed to deprivation of assets rules (so the value of Op's eventual inheritance may be reduced if a charge ios taken against parental estate)
- the parents may need to pay CGT upon point of giving the land depending on the above land sizes etc

G_M

Ah! Yes. Fair enough.

Chorlie

booksurr wrote: »

it may apply since it is more than likely the land being gifted (or sold for that mater) is not covered by the father's private residence relief since that is limited to "garden" land of no more than 0.5 hectacre.

OP's parents live on a farm, so the bit of land being transferred may either be agricultural land or as implied, brownfield industrial land or the land designated as being the "farmhouse" may be more than 0.5 in area and so splitting any of that off is a CGT transaction

in summary
- OP will not be liable to any tax themselves
- the parents will need to live 7 years to avoid IHT gift rules
- the parents will be exposed to deprivation of assets rules (so the value of Op's eventual inheritance may be reduced if a charge ios taken against parental estate)
- the parents may need to pay CGT upon point of giving the land depending on the above land sizes etc

Thanks for that....

It was part of a small farm many years ago, but my father only inherited the old farm barn (which he converted into his workshop) and the land around / stands on plus a couple of fields which join the land that the barn is on (the old farm house and the other field was left to another family member).

These fields have already been gifted to my sister and myself a few years ago, but they are within a Green Belt area so planning on those would be unlikely plus if we did build where we'd like these fields who give use green space, views and some privacy.

My parents live in a semi which they own, some small saving but no debts....

booksurr

Chorlie wrote: »

My parents live in a semi which they own, some small saving but no debts....

so the land to be gifted is entirely separate from the semi in which they live?

if yes then it is cut and dried, parents would face CGT on the land value. They would be best to consult a specialist land valuer given the nature of the transaction given the possibilities: industrial land? no planning permission? with planning permission? etc

Doozergirl

I don't see how it can't be worth it if you can raise the funds to build.

If the building is essentially derelict and the value of the land presently low, then gifting it to you before obtaining planning permission would help you.

If it ends up, as is, in a care home pot, then any oportunity for you to gain is lost.

If you have it now and it is properly valued for tax purposes, then you will benefit from the uplift in gaining planning and the hopeful extra saving you will make on self-building versus the market value and your parents would only be liable for tax at the lower value.

If the worst comes to the worst, you have a valuable asset that could be sold to pay IHT, but you'd presume that
a) your parents house will also be left to you and your sister and the sale of this would cover IHT
b) the house is sold beforehand to cover care fees and the pot for IHT is dwindled and nothing is due.
c) there might be the risk that one parent is in care and funds are needed without selling parent's main home. Would the uplift and build seen as deprevation of assets? Seems unfair if the hard work and investment in building yours.

My plan would be to know what the likelyhood of those things were and to see if you possibly had to sell your shiny bungalow. But at least you will have gained financially where you otherwise wouldn't. Either way, the family financial pot will be worth more and your inheritance more secure than it would have been.

I don't think it should be a case of "do or don't". I appreciate you're looking for your forever home, but a bit of property development would be beneficial to you even if you did sell up one day. The opportunity could just be lost altogether, otherwise.

I maybe talking rubbish as I know little about tax, but I am looking at it from the perspective that you might letting the tax tail wag the dog.