Gifting an inherited stake in a property to avoid 2nd home stamp duty. Any advice?

Jackwatson

Hi guys,

First off, thanks for reading!

So a few years ago when my grandma passed away she left 20% of her house to me and my brother each, and the remaining 60% to my mum.

I'm now in a position where I'm ready to buy my own flat, but in the eyes of HMRC not only am I no longer a first time buyer, but I'm a prospective second home buyer. This seems a bit absurd to me, and had my grandma known this was how things worked I'm sure she would have left the entire house to my mum, bless her. Anyhow, I will never be eligible for the discounted rate of stamp duty recently introduced for first time buyers. If possible I would like to avoid paying the second home owner stamp duty rate, and thought I could gift my stake in the property to another family member. Does anyone have any experience doing something like this?

Thanks again for reading, and any advice you might be able to offer.

Jackwatson

Pixie5740

Is your 20% share worth £40k or more?

If yes how does the value of your 20% share compare with the additional amount of SDLT you would need to pay?

Jackwatson

The 20% is worth approximately £60,000, and according to my solicitor the stamp duty owed as a second home owner would be an additional £15,000 on top of the standard stamp duty.

Update: my solicitor informed me I can give my share back to my mum in what's called a Transfer of Exchange. It takes a few weeks to do, and costs £500 in legal fees but seems worth it if it'll save me £14,500!

Keep_pedalling

Jackwatson wrote: »

The 20% is worth approximately £60,000, and according to my solicitor the stamp duty owed as a second home owner would be an additional £15,000 on top of the standard stamp duty.

Update: my solicitor informed me I can give my share back to my mum in what's called a Transfer of Exchange. It takes a few weeks to do, and costs £500 in legal fees but seems worth it if it'll save me £14,500!

What was the value of your share when you gran died? If it was considerably lower you may have a capital gains liability to add to that.

Gabbs_the_Newt

So you're throwing away £60,000 in order to save £15,000? I am quite stupid so am probably missing something, but that doesn't make sense to me?

Cheeky_Monkey

Gabbs_the_Newt wrote: »

So you're throwing away £60,000 in order to save £15,000? I am quite stupid so am probably missing something, but that doesn't make sense to me?

From reading the OP, it would appear that you're not the only one :rotfl:

Sea_Shell

Gabbs_the_Newt wrote: »

So you're throwing away £60,000 in order to save £15,000? I am quite stupid so am probably missing something, but that doesn't make sense to me?

But is that £60,000 ever able to be realised, if the house continues to be occupied by other owners or rented out?

G_M

It might well make sense to gift it to your mum.

Yes, as pointed out "you're throwing away £60,000 in order to save £15,000" but another way of looking at it is that the family is saving £15K from the taxman, and the family is keeping the £60K.

But there are other factors:

* your potential Capital Gains Tax. Has the value (gain) of your 20% increased between the date you inheritted and the date you plan to gift it to mum? By how much?? Some maths needed.

* If mum is elderly or terminally sick, the £60K will be added to her Estate if/when she dies. Depending on the total value of her Estate, this might increase the Inheritance Tax. Another bit of maths needed!

* Might mum later need to go into a care home? Whether she is eligible for Local Authority funding will depend on her total assets. Since she already owns 60% of the property (value = £180K) she will not be eligible (the limit is around £18K I believe), but if she lived a long time in a care home, the CH costs would gradually eat up her £180K till it was down to £18K - and the LA would then take over payments. But gifting her another £60K means that would get eaten up by the CH fees too.

This may not ever apply, or may not apply for many years, but is another factor to consider. Looking ahead (as you've now discovered!) is important.

zagfles

Jackwatson wrote: »

Hi guys,

First off, thanks for reading!

So a few years ago when my grandma passed away she left 20% of her house to me and my brother each, and the remaining 60% to my mum.

A "few" being how many exactly? If less than 3 years ago you should be OK, see https://www.gov.uk/guidance/stamp-duty-land-tax-buying-an-additional-residential-property at the end.

Cheeky_Monkey

Sea_Shell wrote: »

But is that £60,000 ever able to be realised, if the house continues to be occupied by other owners or rented out?

Why not? All they have to do is sell it and take their share

zagfles

G_M wrote: »

It might well make sense to gift it to your mum.

Yes, as pointed out "you're throwing away £60,000 in order to save £15,000" but another way of looking at it is that the family is saving £15K from the taxman, and the family is keeping the £60K.

But there are other factors:

* your potential Capital Gains Tax. Has the value (gain) of your 20% increased between the date you inheritted and the date you plan to gift it to mum? By how much?? Some maths needed.

* If mum is elderly or terminally sick, the £60K will be added to her Estate if/when she dies. Depending on the total value of her Estate, this might increase the Inheritance Tax. Another bit of maths needed!

* Might mum later need to go into a care home? Whether she is eligible for Local Authority funding will depend on her total assets. Since she already owns 60% of the property (value = £180K) she will not be eligible (the limit is around £18K I believe), but if she lived a long time in a care home, the CH costs would gradually eat up her £180K till it was down to £18K - and the LA would then take over payments. But gifting her another £60K means that would get eaten up by the CH fees too.

This may not ever apply, or may not apply for many years, but is another factor to consider. Looking ahead (as you've now discovered!) is important.

Or might be better for the Mum to buy the house off him, either with capital, a mortage, or if neither is viable then a loan (possibly interest free) from him. So she gets the extra 20% of house, and an officially drawn up loan from him for £60k (or £60k in cash if she has it or can get a mortgage).

Might be worth looking into.