tax queries with gifting / transferring house

bellam

Hi,

I'm looking for some advice. I'm planning on changing the deeds of my mortgage free home to my two children, where the eldest has moved out into his own house and the youngest still lives with me. My husband passed away four years ago leaving me with 50% to myself, and the rest to my two sons equally.

This house has always been my main residence along with my younger son and I want to help him whilst I can. I'm planning to change the deeds into both their names equally so they end up with 50% each. After talking to them both, my oldest is happy to sell his share to my youngest (so the house becomes in my youngest name solely) with me still living there rent free (I currently spend my time there but also at my partner’s house). We think it's just a matter of changing the names on the deeds and the house is probably worth £550k but I will be getting an Estate Agent to value the house.

Can someone please advise on the tax implications as I don't want any surprises for either of them with regards to CGT and IHT, either in life or if I don’t make it past the 7 years.

1) will I or my children be liable for CGT? I'm assuming no as it's our main residence and CGT only comes into the picture if the property is rented out? (just a thought, if my youngest decides to rent it out in the future, then he has to pay CGT like a normal scenario i.e outside Probate?)
2) if I still live at the property without paying rent, is it still classed as a gift or a gift with benefit? what tax implications are there and who pays e.g. both my sons, my youngest, or myself (in life or from my estate if i don't make it past 7 years)
3) I understand that IHT will be in play if i don't make it past 7 years after the gift, and it's my estate that the Tax people will look at. I’m asking these questions as I don't want my youngest to be handed the actual financial burden of any taxes and would rather it come from just my estate or both my sons equally, and not just himself if he is to become the sole owner.
4) is there any Stamp Duty to be paid? I'm assuming no as I'm not selling it but I'm unsure (will my sons have to pay Stamp Duty if my oldest removes his name from the deeds and my youngest pays him back?)


Thanks

Pixie5740

bellam wrote: »

Hi,

I'm looking for some advice. I'm planning on changing the deeds of my mortgage free home to my two children, where the eldest has moved out into his own house and the youngest still lives with me. My husband passed away four years ago leaving me with 50% to myself, and the rest to my two sons equally.

This house has always been my main residence along with my younger son and I want to help him whilst I can. I'm planning to change the deeds into both their names equally so they end up with 50% each. After talking to them both, my oldest is happy to sell his share to my youngest (so the house becomes in my youngest name solely) with me still living there rent free (I currently spend my time there but also at my partner’s house). We think it's just a matter of changing the names on the deeds and the house is probably worth £550k but I will be getting an Estate Agent to value the house.

Can someone please advise on the tax implications as I don't want any surprises for either of them with regards to CGT and IHT, either in life or if I don’t make it past the 7 years.

1) will I or my children be liable for CGT? I'm assuming no as it's our main residence and CGT only comes into the picture if the property is rented out? (just a thought, if my youngest decides to rent it out in the future, then he has to pay CGT like a normal scenario i.e outside Probate?)
2) if I still live at the property without paying rent, is it still classed as a gift or a gift with benefit? what tax implications are there and who pays e.g. both my sons, my youngest, or myself (in life or from my estate if i don't make it past 7 years)
3) I understand that IHT will be in play if i don't make it past 7 years after the gift, and it's my estate that the Tax people will look at. I’m asking these questions as I don't want my youngest to be handed the actual financial burden of any taxes and would rather it come from just my estate or both my sons equally, and not just himself if he is to become the sole owner.
4) is there any Stamp Duty to be paid? I'm assuming no as I'm not selling it but I'm unsure (will my sons have to pay Stamp Duty if my oldest removes his name from the deeds and my youngest pays him back?)


Thanks

If your eldest son sell his share then there will be a CGT liability since the property is not his main residence.

Your younger son will have a SDLT liability for the consideration paid to the elder brother for his share. However, there is a SDLT relief for first time buyers at the moment so that could well be zero.

If you continue to live in the property and don't pay market rent then the 7 year rule won't apply. Instead it will fall under the POAT rules (I think) which means it makes no difference if you survive for more than 7 years after making the gift.

There's also deprivation of assets to consider should you require care in the future. There is no time limit on how far back the council can go to claw back assets given away.

My advice would be to not attempt to DIY your estate planning and get professional advice.

Keep_pedalling

You would be very foolish to do this unless you have plenty of other assets, but if you have those then cash gifts would better than handing your home over.

getmore4less

Do you have a life interest in your deceased husbands share?

if you do then the kids don't own anything yet.

bellam

Thank you for the responses. Just looking at all the options as I really want to help my youngest to get on the property ladder and thought about selling the house but it has sentimental value. Will have a read on POAT for the above scenario which I assume may also apply if I downsize as an option and the sons have their shares.

I don't have a Life Interest in my husband's share, so as my youngest has a share, does he still count as a First Time Buyer if he were to buy his own property?

Thanks

00ec25

bellam wrote: »

This house has always been my main residence along with my younger son and I want to help him whilst I can. I'm planning to change the deeds into both their names equally so they end up with 50% each. After talking to them both, my oldest is happy to sell his share to my youngest (so the house becomes in my youngest name solely) with me still living there rent free (I currently spend my time there but also at my partner!!!8217;s house).

it may be the only property you own but that does not make it your main residence if, as you say, you spend time elsewhere in what is, in reality, a very obvious "household" situation

bellam wrote: »

1) will I or my children be liable for CGT? I'm assuming no as it's our main residence and CGT only comes into the picture if the property is rented out? (just a thought, if my youngest decides to rent it out in the future, then he has to pay CGT like a normal scenario i.e outside Probate?)

you - possibly not depending on whether the partner's property has become your main home. It is not a question of what you own, or how much time you spend where. It is a subjective assessment of the "quality of your occupation" of each property. The fact you have a child still at his father's property should be significant + factor in such an assessment if the child is young enough that you are still actively parenting it. If child is "old", the position is less clear cut than you think.

youngest - yes he would be liable for CGT if he lets ("rents out") the property as it would then cease to be his home. His liability would commence from the date he became an owner, not the date of probate.

bellam wrote: »

2) if I still live at the property without paying rent, is it still classed as a gift or a gift with benefit? what tax implications are there and who pays e.g. both my sons, my youngest, or myself (in life or from my estate if i don't make it past 7 years)

it would be a Gift With Reservation of benefit. So it would never leave your estate for IHT purposes and the 7 year rule won't apply unless it ceases to be your main home as you have moved out and taken up residency with the new partner.

A GWR takes precedence over a POAT. Only if it fails as a GWR would it be assessed as a POAT.

bellam wrote: »

3) I understand that IHT will be in play if i don't make it past 7 years after the gift, and it's my estate that the Tax people will look at. I!!!8217;m asking these questions as I don't want my youngest to be handed the actual financial burden of any taxes and would rather it come from just my estate or both my sons equally, and not just himself if he is to become the sole owner.

IHT liability falls on the estate. Only if the estate cannot settle its debts by using cash or selling off whatever assets remain in the name of the estate would anyone who received a gift before death become liable for IHT on the value of that gift

bellam wrote: »

4) is there any Stamp Duty to be paid? I'm assuming no as I'm not selling it but I'm unsure (will my sons have to pay Stamp Duty if my oldest removes his name from the deeds and my youngest pays him back?)

youngest would be liable to SDLT based on the cash paid to the eldest. Such sum may or may not be above the SDLT threshold

bellam

Many Thanks 00ec25 for the clarifications.

If my youngest has a share in the property, does he count as a first time buyer?

Thanks

bowlhead99

bellam wrote: »

Many Thanks 00ec25 for the clarifications.

If my youngest has a share in the property, does he count as a first time buyer?

If he is an owner of property then he is not a first time buyer in terms of getting relief from stamp duty or using various 'free money' incentive schemes like help to buy ISA / Lifetime ISA etc.

bellam wrote: »

I really want to help my youngest to get on the property ladder and thought about selling the house but it has sentimental value.

Sentimental value is not value that one can spend, so if your goal is to help your youngest become a property owner, he might not appreciate being tied in to some old 'family home' which isn't entirely suitable for his needs and has yourself as a sitting tenant. Rather than being able to buy a flat or house somewhere he specifically wants meeting his ideal specification. Obvously he is not going to look a gift horse in the mouth, so will say he's OK with the arrangement, but a proper gift of cash to him might be a lot more suitable.

I don't blame the eldest for saying he would graciously agree to sell his share to the other (i.e. the sensible "take the money and run" approach).