Gift and transfer amongst children

sandrineschurer

We are all based in the UK and looking to buy a flat for our three children by raising the mortgage on our house. Currently only our eldest child is above 18, so we would buy the property in her name to start with and we would have a family agreement to establish the following:

- We would receive the net rental income until mortgage is paid off

- Our daughter would gift 1/3 of the property to each of her siblings when they each reach the age of 18.

- We would renew our family agreement each time a sibling is included.

I wanted to make sure it was technically possible to organise this scenario and wanted to understand what fees and tax implications we should consider (solicitor fees as well as stamp duty/transfer/inheritance tax if relevant).

[Deleted User]

A few points to consider but, foremost, you are aware that your daughter will be solely liable for tax on the rental profit? She will not be able to claim any credit for mortgage interest as this is not in her name. 

pphillips

I believe that any absolute gift to your oldest would have to be irrevocable and unconditional. It seems that what you're looking to set up is a lifetime trust, where the property is held in the name of trustees. I think it's important to understand that for most people, creating a lifetime trust creates an ongoing liability to pay IHT during their lifetime that would not be due if the trust was created on their death.

Jeremy535897

I think it is a truly horrible idea with no merit at all, because (off the top of my head):

• it is probably a gift with reservation for inheritance tax purposes, as you will be entitled to receive the income
• the gift may be caught by the settlement provisions for income tax, which might mean you are taxed on the income, but there may be an issue over claiming anything for the finance costs, as they won't be incurred as part of a rental business for you
• your daughter would make a disposal for capital gains tax when transferring part of the property to a sibling
• how do you compel your daughter to make the gifts? What if she marries?
• everybody in the family is probably going to end up with higher rate stamp duty on any future property purchase
• there will presumably be no first time buyer benefits for any of the children

[Deleted User]

Jeremy535897 said:

I think it is a truly horrible idea with no merit at all, because (off the top of my head):

• it is probably a gift with reservation for inheritance tax purposes, as you will be entitled to receive the income
• the gift may be caught by the settlement provisions for income tax, which might mean you are taxed on the income, but there may be an issue over claiming anything for the finance costs, as they won't be incurred as part of a rental business for you
• your daughter would make a disposal for capital gains tax when transferring part of the property to a sibling
• how do you compel your daughter to make the gifts? What if she marries?
• everybody in the family is probably going to end up with higher rate stamp duty on any future property purchase
• there will presumably be no first time buyer benefits for any of the children

Indeed! Surely it would be a much better idea for the op and his wife to purchase the property, declare income and expenditure, pay tax accordingly (making use of any married couple transfers) and, when mortgage paid off, transfer the property to all three children when the youngest reaches 18. That’s if they really want to go ahead with it given the last two points.

Jeremy535897

purdyoaten2 said:

Jeremy535897 said:

I think it is a truly horrible idea with no merit at all, because (off the top of my head):

• it is probably a gift with reservation for inheritance tax purposes, as you will be entitled to receive the income
• the gift may be caught by the settlement provisions for income tax, which might mean you are taxed on the income, but there may be an issue over claiming anything for the finance costs, as they won't be incurred as part of a rental business for you
• your daughter would make a disposal for capital gains tax when transferring part of the property to a sibling
• how do you compel your daughter to make the gifts? What if she marries?
• everybody in the family is probably going to end up with higher rate stamp duty on any future property purchase
• there will presumably be no first time buyer benefits for any of the children

Indeed! Surely it would be a much better idea for the op and his wife to purchase the property, declare income and expenditure, pay tax accordingly (making use of any married couple transfers) and, when mortgage paid off, transfer the property to all three children when the youngest reaches 18. That’s if they really want to go ahead with it given the last two points.

At that point there will be a capital gains tax disposal, of course.

[Deleted User]

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

I think it is a truly horrible idea with no merit at all, because (off the top of my head):

• it is probably a gift with reservation for inheritance tax purposes, as you will be entitled to receive the income
• the gift may be caught by the settlement provisions for income tax, which might mean you are taxed on the income, but there may be an issue over claiming anything for the finance costs, as they won't be incurred as part of a rental business for you
• your daughter would make a disposal for capital gains tax when transferring part of the property to a sibling
• how do you compel your daughter to make the gifts? What if she marries?
• everybody in the family is probably going to end up with higher rate stamp duty on any future property purchase
• there will presumably be no first time buyer benefits for any of the children

Indeed! Surely it would be a much better idea for the op and his wife to purchase the property, declare income and expenditure, pay tax accordingly (making use of any married couple transfers) and, when mortgage paid off, transfer the property to all three children when the youngest reaches 18. That’s if they really want to go ahead with it given the last two points.

At that point there will be a capital gains tax disposal, of course.

Which the daughter will also have each of the two times that she gifts 1/3 to a sibling.

Jeremy535897

[Deleted User] said:

Jeremy535897 said:

purdyoaten2 said:

Jeremy535897 said:

I think it is a truly horrible idea with no merit at all, because (off the top of my head):

• it is probably a gift with reservation for inheritance tax purposes, as you will be entitled to receive the income
• the gift may be caught by the settlement provisions for income tax, which might mean you are taxed on the income, but there may be an issue over claiming anything for the finance costs, as they won't be incurred as part of a rental business for you
• your daughter would make a disposal for capital gains tax when transferring part of the property to a sibling
• how do you compel your daughter to make the gifts? What if she marries?
• everybody in the family is probably going to end up with higher rate stamp duty on any future property purchase
• there will presumably be no first time buyer benefits for any of the children

Indeed! Surely it would be a much better idea for the op and his wife to purchase the property, declare income and expenditure, pay tax accordingly (making use of any married couple transfers) and, when mortgage paid off, transfer the property to all three children when the youngest reaches 18. That’s if they really want to go ahead with it given the last two points.

At that point there will be a capital gains tax disposal, of course.

Which the daughter will also have each of the two times that she gifts 1/3 to a sibling.

Indeed, as I pointed out earlier.

getmore4less

Start from what you are trying to achieve.

DoctorStrange

getmore4less said:

Start from what you are trying to achieve.

This


If you define your objectives a little more clearly perhaps folk can help a little more

Keep_pedalling

Agree with the others, the plan is bonkers. All three of your children will loose their first time buyer status before the are even considering buying their first house, so will be hit by having to pay additional stamp duty when they do eventually buy.