Transferring commercial property to let

alicegoody

I was hoping that someone could help me with a tax question - it seems to be a minefield out there!

I currently own a commercial property outright and am looking at letting it. However, this would take me into the higher rate of income tax and it would hugely minimise the income from the building. I am therefore looking at transferring the ownership of the property to my father who is on a low income, who would then be able to let it out in his name and get the income instead.

Is this allowed and, if so, is it costly to do so? Would I need a solicitor or can I fill in an online form to transfer the ownership - I'm hoping that I do not have to put it on the market, only for my father to then buy it!

oldbikebloke

you would be "disposing" of the property to a "connected person"

you will therefore trigger CGT payable by yourself on the gain using its current market value compared to original cost 

you may need to rethink your "scheme" if you are so afraid of paying a bit of income tax 

alicegoody

I don't think that the property will have increased in value at all and so am assuming that I would not be liable for CGT.

Jeremy535897

I assume the property is mortgage free? I assume it is also unlikely that your father will pay you anything for it? If either of these assumptions is incorrect, there may be a stamp duty cost to your proposal.

You are free to give or sell a commercial property you own outright to whoever you please, without needing to put it on the market. Whether it is a wise thing to do is another matter. Your father could sell it and keep the proceeds. The property will become part of his estate for inheritance tax purposes. If the value exceeds £325,000, your gift may become subject to inheritance tax if you die within seven years.

alicegoody

Thank you for the information which is really helpful.
The property is mortgage free and I wouldn't expect my father to pay me anything for it. It is also valued well below £325K.

alicegoody

Do you know how I would go about transferring the ownership - do I have to go through a solicitor or fill in a downloadable form?

Grumpy_chap

It is not only the property being transferred that influences IHT £325k threshold.
I recommend that you take professional advice.

[Deleted User]

Your father would also have to register for self-assessment and complete a return each year. If he is on a low income, how would the rental income affect any benefits he may receive?
Will he make a will to bequeath it (back) to you? 

Jeremy535897

alicegoody said:

Do you know how I would go about transferring the ownership - do I have to go through a solicitor or fill in a downloadable form?

It depends. You can transfer the legal and beneficial ownership to him. You need a solicitor to do that. You can transfer the beneficial interest to him, by a declaration of trust, which I would recommend using a solicitor for. Nothing changes at the Land Registry if you go down this route, but HMRC may seek proof of the transfer. If an agent collects the rent, they would have to be clear that the rent goes to your father. Transferring legal and beneficial interest is the simplest way to go.

You could get more complicated if you wanted to ensure that the property could not be willed away to someone else by your father (although if he remarried no arrangements are bombproof), but that needs good tax and legal advice.

BootcamperHF

Your logic for transferring (even if there is no CGT on a connected disposal) seems a little odd if you do not think your post tax rental income makes it worthwhile retaining ownership yet by transferring the property to your father you are giving away the whole of the income unless you are considering some form of reimbursement from your father which would be of interest to HMRC.  As others have already said this could have IHT and benefit entitlement consequences for your father.

alicegoody

Jeremy535897 said:

alicegoody said:

Do you know how I would go about transferring the ownership - do I have to go through a solicitor or fill in a downloadable form?

It depends. You can transfer the legal and beneficial ownership to him. You need a solicitor to do that. You can transfer the beneficial interest to him, by a declaration of trust, which I would recommend using a solicitor for. Nothing changes at the Land Registry if you go down this route, but HMRC may seek proof of the transfer. If an agent collects the rent, they would have to be clear that the rent goes to your father. Transferring legal and beneficial interest is the simplest way to go.

You could get more complicated if you wanted to ensure that the property could not be willed away to someone else by your father (although if he remarried no arrangements are bombproof), but that needs good tax and legal advice.

Thank you. An agent would be collecting the rent and so would they just be able to pay the rent to my father - or would I need to set up a trust to allow that to happen? Would I need a solicitor?

Thank you so much for your help once again.... I just don't want to get things wrong.