Second Home (Value) Transfer

lm_92

Hi All,

Long time lurker here - really appreciate all the advice and information shared, and hoping you can help point me in the right direction.

Parents X and Y own a second home as a result of a strange set of family circumstances. They now want to split the value of the house and divide it 4 ways between themselves, and children A, B and C. Value of home is circa £100k, so £25k each. None of the beneficiaries are interested in keeping the house. Every beneficiary pays income tax at the 20% bracket (if that matters).

House has maybe gained £20k value during the period of ownership, for CGT purposes.

What would be the most efficient way of transferring the value to the beneficiaries?

If the house is sold and the value is gifted, then I understand both CGT and Income Tax would have to be paid? Would it be better to gift a quarter of the house pre-sale to Children A, B and C?

Thanks in advance for your input.

SpiderLegs

Sell the house and distribute the proceeds.
no income tax is payable
CGT appears to be under threshold

canaldumidi

Beneficiaries? Who has died?

If "None of the beneficiaries are interested in keeping the house" why make this complicated?

Sell the house.

A & B (current joint owners) each have CGT allowance of £12,300K so no CGT to pay (unless the allowance has been used elsewhere).

Income tax only applies if they have been renting the property out and earning income from it.

If A & B then wish to gift some money to their children they can then do so. Provided they live 7 years, the gift would be exempt from Inheritance Tax ( same applies if they gifted the property to the children).

lm_92

Hi, thanks for the replies.

Apologies if my terminology isn't correct, but a beneficiary is just someone who gains benefit from something, nobody has to have died.

Would the children not have to pay income tax on the £25k they each receive? I believe there is a tax-free gifting limit of £3k pa?

Thanks

canaldumidi

A gift is not income. It isnot earned. So no income tax.

The tax-free limit applies to Inheritance Tax (as explained above). Which only applies if the donors die within 7 years (and on a reducing sliding scale).

Note: if the property is gifted to the children there could be SDLT costs (if they already own a property), and if they do not, they'd lose their FTB benefits.

lm_92

Thanks all, that makes sense.

I had read other articles that seemed to imply tax was due over £3k, without making it clear that this was only if the gifters died within 7 years.

Thanks again.

p00hsticks

lm_92 said:

Thanks all, that makes sense.

I had read other articles that seemed to imply tax was due over £3k, without making it clear that this was only if the gifters died within 7 years.

Thanks again.

And even then, only if the deceased's estate exceeds their inheritance tax threshold....