Can I give my house to my brother?

kiden

Hi

I was wondering what the financial consequences might be if I give my house (which I own outright, i.e. no mortgage) to my brother, and then buy another house for myself.

Basically, I'm trying to avoid Capital Gains Tax and any money having to change hands (apart from solicitors fees). I'm also needing to know the Inheritance Tax position, and if there's any other taxes or rules involved.

Some basic facts...

My brother is married with 2 children from a previous marriage. His current home (and the mortgage on it) is in his current wife's name only, so my house, once given to him, would be his only property.

My new house would be my only property.

He'd continue living in his wife's property. I would live in my new property. 'My' old property (the one I'd be giving to my brother) would be being rented out for about £5.5k pa.

Needless to say, I trust my brother implicitly or I wouldn't even be considering this, but I'd never-the-less be asking him to write a will relating to 'my' property to keep the wife/children situation clear.

The values of all the houses don't take any of us separately above the Inheritance Tax (IHT) threshhold. If my brother's wife were to die and he inherited her property, then owning both properties would probably take him above the IHT limit, but I'm thinking we could deal with that if/when we came to it.

I'd really appreciate all your thoughts, information, warnings, etc on this one...

Thanks!

silvercar

Giving your current house to your brother counts as an event that could be liable for CGT. If you have lived in the house as your PPR for the whole time you owned it then it would be exempt from CGT. If you have been renting it out at any time you may be liable for CGT. This would be based on the current market value as you and your brother are related so the "giving it free" arguement is irrelevent.

Now to the future: Your brother and his current wife can only have one PPR between them, whoever technically owns the properties. So if he is living with his wife in her property that is his PPR. Consequently there will be a CGT liability when the house is sold. This would be based on the difference between its value now and the value when sold.

The old property would be generating an income of 5.5k; the recipient would need to account for this to the revenue ie there would be an income tax liability.

Additionally, his ex-wife might become aware of this income and want to review any maintenance.

You may trust your brother and his will writing but you can't predict the future and his wife and ex-wife possibly. At some point a loan could be taken against that houseand you would have no say.

As far as inheritance tax goes, provided you survived for another 7 years the gift of the house would fall outside your estate. If anything happened to your brother, the house would be left according to his will.

These points are off the top of my head, maybe if you wanted to say where you think the gain would be it would help.

If the sole purpose was because you thought that the brother's wife could have one home, your brother another and you a third, so no-one plays any CGT on sale, that won't work because a married couple can have only one PPR.

kiden

thanks for your reply i take on board your point about the trust issue. hadn't thought about the income side for my brother, but we could cover that out of the rental itself i'm guessing. and thanks for the info on married couples and PPRs.

the main reason behind all this is to take advantage of an extememly good deal on a particular house i'm thinking of buying; the problem is that to get the deal, it needs to be my only property (i.e. i have to have sold or be selling my existing house to get the deal). i could 'buy' back my old house after 5 years and own both without compromising the deal.

i'm therefore trying to think of ways of keeping my existing house but not in my name for the next 5 years, and doing this with minimal taxes and costs.

silvercar

i'm therefore trying to think of ways of keeping my existing house but not in my name for the next 5 years, and doing this with minimal taxes and costs.

That's easy. Create a limited company with you as the sole owner. Sell your house to the limited company and buy it back in 5 years time. In law, the company would be a separate entity but in practice you would have complete control.

RabbitMad

Is this an even easier way? - you put your property on the market at a stupid figure (thus you are selling your house.) Once you've got the new house then you say I can't sell this - Doh! (and then you get to keep it)

What sort of deal means that it has to be your only property?

kiden

silvercar - that's an interesting idea would my limited company have to pay capital gains tax when it sold it back to me? and would the rental go through the company and generate taxable profit .. after expenses ..?

RabbitMad - unfortunately the house has to be sold before i can take advantage of the benefits of the deal

i'm really sorry about being so mysterious about the deal - it's an offer that's been made privately to me, so i can't really go into it on here in case i'm sussed out! lol. basically it allows me to buy a house almost twice the value of my current one while - for the next 5 years - only paying the equivalent of what the mortgage payments would 'have been' on my current one

i say 'have been' because if i can manage to keep my original house i can cover that part with rental income, effectively keeping my house payments at more-or-less zero as they currently are.

silvercar

If the property increased in value there would be a CGT liability on the sale back to you. If it didn't increase there wouldn't. There is talk of the chancellor allowing 100k profit on closing small businesses before tax.

The rental would generate a profit liability for the company, but then the company could have legitimate expenses - it could raise a mortgage so the company could pay back to you some of the money that you lent it so that it could buy the property from you. The mortgage interest would be an allowable expense.

Say company takes a 75k loan to pay you for the property. This 75k calculated so that the mortgage interest is slightly less than the rental income. With other expenses the company makes no profit and so has no tax to pay. You personally get the interest on the 75k (taxable). You could use any amount that was less than the property value and the rental income was sufficient to cover it.

Best exploring the idea with an accountant, but it seems safer than putting it in someone elses hands.

moneysavinmonkey

I'm guessing it's some kind of social/affordable housing scheme designed to help people who otherwise couldn't afford to buy their first home at a discounted rate (presumably funded by the taxpayer in some way)

the OP shouldn't/wouldn't be eligible presently since patently they are already able to afford their own home but if they offload it to their brother they appear to be a penniless FTB and can snap up a second property at a discount - at the expense of someone genuinely deserving of the scheme & our taxpayers monies...

am i wrong?

kiden

silvercar - thanks for that - i'll do some work on figures with an experienced accountant

moneysavinmonkey - i can reassure you that this is nothing to do with social housing that wouldn't sit right with me. it's part of an offer i've been made privately in exchange for something the other party wants from me - they're trying to make the deal as attractive as they can to me, and i'm trying to bend the deal that little bit further to get the most out of it.

Generali

Don't forget stamp. Stamp duty is payable on a change of beneficial ownership at the 'market price' (not the price paid in the transaction).

SquatNow

In terms of "giving" it to your brother you need to understand that ALL debt is now consider to be secured on any property that you own.

There was a change that took effect in april 2006... and was implemented VERY quietly.

Now your credit card company can repossess your house for an unpaid credit card debt. They could do this before but the paperwork cost tens of thousands, now they just fill in a form and have it stamped by the clerk at the local magistrates court.

If your brother got into debt, you'de lose the house even if the debts weren't secured against it.