Adding son to a mortgage!

56cheffy

I have 5 properties that I let out, each with a mortgage. I do it as a 'hobby' I am not a limited company.

When I pop my clogs my son will be liable for inheritance tax.

So a few questions.

After paying inheritance tax, if he were then to sell one or more of the properties would he then also be liable for CGT?

Can I add my sons name to each of the mortgages so his inheritance tax is reduced by 50% and possibly then none to pay on my demise?

If I did this am I in fact 'gifting' him a substantial amount of money that he would have to pay tax on?

Also if I did this I assume that as the properties are rented he would therefore have extra income from rent that he would have to declare to the tax man or can I legally keep all the rent for myself?

Thanks in advance.

kinger101

The transfer of mortgage property to your son will attract both CGT and SDLT.

For SDLT, assuming the bank agree, you're transferring property for consideration (mortgage debt). I.e, if you have a £200K property with a £100K mortgage and you transfer half to your son, you've effectively sold that share for £50K.

As far as CGT is concerned, whether your son pays nothing or £1,000,000, a disposal at market value has occurred. And the gain will be calculated with the sales proceeds as market value of property before transfer less market value after transfer.

For IHT, it becomes a potentially exempt transfer. There's a risk of double taxation if you start turning up the daisies within 7 years of the gift.

You son will be liable for CGT if he makes a capital gain. The base cost will depend on how and when the assets were transferred.

There's a lot that can go wrong here, so really you need professional taxation advice if you want to efficiently transfer property to your son. If you do some DIY thing, you'll make a mess of it.

BTW, fishing is a hobby. Letting five properties is a business.

booksurr

if you add son to mortgage then he will be on the deeds and that counts as a disposal for CGT purposes. You and he are "connected persons" therefore you (not him) will be liable for CGT now based on the gain from purchase price to market value at date of transfer

as these are let properties you have no claim to private residence relief so are fully exposed to CGT. Obviously this is to ensure that anyone evading IHT by doing what you propose is caught by CGT. From an inheritance planning perspective you need to crunch some numbers to see if paying CGT now (bearing in mind its top rate is currently 28%) will be cheaper than your estate paying 40% IHT on however much is above your nil rate band when you die. As you have not explained whether you are married, and if so what happens to the wife's IHT allowance, that could (at current rates) be either 325,000 or 650,000. There is also the question of whether you will live for more than 7 years and so evade the IHT gift rules. Clearly there is much guess work in that, not least assumptions about future tax rates and the politics of who is the next tax target!

if son is on the mortgage (and therefore by necessity the deeds) income tax law says that you can split the rental income any way you want, including 0/100 if so desired. It is only where the income relates to a married couple, is the split forced by law.

with 5 properties in your portfolio these are very basic questions to be asking - shouldn't you go see an accountant or solicitor and get professional advice on tax planning?

56cheffy

kinger101 wrote: »

BTW, fishing is a hobby. Letting five properties is a business.

:D

Thanks..........

getmore4less

Him owing 1/2 the properties does not make the IHT 50%

The IHT is based on net value less any nil rate band which currently is £325
how much will that be if there are mortgages on the properties.

There may be more if you have spouse transferable nil rate available.

CGT effectively get reset on death

There may be some benefit in restructuring the assets if the intention is for the son to take over the business(and he wants to).

There is also the big risk that the current setup won't wash when you die, the lenders may just decide that the son can't have mortgages.

That is one thing that getting him on the mortgages deeds now will resolve even if it triggers gains.

The way round the Gift with reservations is to sell rather than gift as long as the son can raise the extra funds.

56cheffy

booksurr wrote: »

with 5 properties in your portfolio these are very basic questions to be asking - shouldn't you go see an accountant or solicitor and get professional advice on tax planning?

Thanks, I only posted this morning after reading a thread earlier about a parent who added son and daughter to deeds and then died!

I fully intend to get professional advice on tax planning.
I thought I would post here first to get some idea of what to expect and to be armed with some info before I go see someone.

agrinnall

Your son is not liable for IHT on your death, your estate is. Of course, if your son is the sole beneficiary then the effect is that what he receives will be reduced by the amount of the IHT, but the liability is never his.

kinger101

agrinnall wrote: »

Your son is not liable for IHT on your death, your estate is. Of course, if your son is the sole beneficiary then the effect is that what he receives will be reduced by the amount of the IHT, but the liability is never his.

In the case of a potentially exempt transfer, unless provision was made to settle the IHT liability out of the estate, the recipient can find themselves liable for IHT. It's important when making lifetime transfers to draft wills with this in mind.

56cheffy

getmore4less wrote: »

The way round the Gift with reservations is to sell rather than gift as long as the son can raise the extra funds.

You mean sell the properties to my son?

Thanks

kinger101

56cheffy wrote: »

You mean sell the properties to my son?

Thanks

The gift with reservations thing is probably something of a red herring with regard to let properties, and it should be possible to give property without falling foul of these rules.

Thrugelmir

56cheffy wrote: »

I have 5 properties that I let out, each with a mortgage. I do it as a 'hobby' I am not a limited company.

Mortgages are not transferable. Your estate will have this aspect to address.