Father buying son a second house

ojet

Good Afternoon,

My father wants to buy a second property (for rental income and investment potential). However he has suggested he wants to buy it in my name with a view to taking advantage of the 7 year rule to try and reduce inheritance tax.

I've found a lot of information on parents setting up trusts to buy children their first home however I already have my own home (mortgaged) so I therefore assume that going down the route of a trust in this case is fruitless? I assume if it's in my dads name or my name will still lead to the second home extra stamp duty and trigger future capital gains for either one of us?

He would take the income from any rental but I assume the tenant would have to pay me and then I pay my dad? I can envisage some income tax complications here?

So, ultimately should he buy it in my name or not?

Many Thanks,
ojet

AdrianC

If you are buying an additional property, whether with your money or a gift from your father - yes - the +3% will apply.

CGT will apply on sale if you don't live there, no matter how you buy it.

No, he cannot just take the income from your let property, any more than he will be taking the legal responsibility of being the landlord.
You could, of course, choose to gift it to him after you've paid income tax on it.

davidmcn

If he wants to keep all the profit then it sounds like a gift with reservation of benefit i.e. it wouldn't work for Inheritance Tax purposes, in the same way as transferring title of the family home to the kids doesn't work if the parents continue to live there rent-free. It would be fine if it were a genuine gift i.e. it becomes your property and you keep the rent.

Caramac

I would suggest you look very carefully at this as what you may gain in inheritance tax may be swallowed up in CGT and solicitor fees. 

ojet

Thanks for the swift replies all. I figured it wouldn't be simple. The gift with reservation of benefit is a key bit of information I'd been missing.
If he agrees for it to become my property and I keep all of the rent, if he passed away within the following 7 years, would they use the purchase price now or the market value at time of death for inheritance tax calculations?
Would they also take in to account the rent I earned up till his death in the inheritance tax calc?

AdrianC

ojet said:

I figured it wouldn't be simple.

HMRC aren't stupid. They've seen people trying to pull every type of scam under the sun to evade the tax that's legally due.

If he agrees for it to become my property and I keep all of the rent, if he passed away within the following 7 years, would they use the purchase price now or the market value at time of death for inheritance tax calculations?
Would they also take in to account the rent I earned up till his death in the inheritance tax calc?

No, because it would be a simple gift at the time of purchase.

It's only if you start trying to muck about with paperwork and semantics to cheat the taxman that things become complicated.