Most tax efficient route for parents to transfer a house to a child

Scrumplestiltskin

A UK property is jointly owned by two elderly parents, who would like to bequeath it to their child either as cash (liquidated) or the property itself. The value of the property is around £750-800k. Both the parents are not UK citizens and are not UK resident or tax domiciled. Their child is a UK citizen but an expat living abroad and not a UK tax resident. The property is the parents' sole UK property.

The property was bought about 40 years ago and has appreciated significantly from when it was first purchased, about £80k.

Various repair/refurbishment works were done on the property over the years but no one remembers exactly what or how much anymore, and no receipts were kept. Would HMRC demand receipts to give offset any Capital Gains Tax or are there rules of thumb of acceptable repair/refurbishment expense ranges over the years that may apply?

Is the most tax efficient route to transfer the property to their child by liquidating it, paying any Capital Gains Tax due and then sending the money to their child? Or by giving the property as a gift and possibly paying Inheritance Tax?

Thank you for any advice!

Grumpy_chap

Gifting the property, or selling and gifting the proceeds won't change the CGT or IHT liability.

Is there some reason the children would wish to have the property instead of the funds?  If the children have the property, they will be likely to accrue a future CGT liability.  I think SDLT will also be payable.

Scrumplestiltskin said:

A UK property is jointly owned by two elderly parents, who would like to bequeath it to their child either as cash (liquidated) or the property itself. The value of the property is around £750-800k. Both the parents are not UK citizens and are not UK resident or tax domiciled. Their child is a UK citizen but an expat living abroad and not a UK tax resident. The property is the parents' sole UK property.

The property was bought about 40 years ago and has appreciated significantly from when it was first purchased, about £80k.

Various repair/refurbishment works were done on the property over the years but no one remembers exactly what or how much anymore, and no receipts were kept. Would HMRC demand receipts to give offset any Capital Gains Tax or are there rules of thumb of acceptable repair/refurbishment expense ranges over the years that may apply?

Is the most tax efficient route to transfer the property to their child by liquidating it, paying any Capital Gains Tax due and then sending the money to their child? Or by giving the property as a gift and possibly paying Inheritance Tax?

Thank you for any advice!

Jeremy535897

Grumpy_chap said:

Gifting the property, or selling and gifting the proceeds won't change the CGT or IHT liability.

Is there some reason the children would wish to have the property instead of the funds?  If the children have the property, they will be likely to accrue a future CGT liability.  I think SDLT will also be payable.

Scrumplestiltskin said:

A UK property is jointly owned by two elderly parents, who would like to bequeath it to their child either as cash (liquidated) or the property itself. The value of the property is around £750-800k. Both the parents are not UK citizens and are not UK resident or tax domiciled. Their child is a UK citizen but an expat living abroad and not a UK tax resident. The property is the parents' sole UK property.

The property was bought about 40 years ago and has appreciated significantly from when it was first purchased, about £80k.

Various repair/refurbishment works were done on the property over the years but no one remembers exactly what or how much anymore, and no receipts were kept. Would HMRC demand receipts to give offset any Capital Gains Tax or are there rules of thumb of acceptable repair/refurbishment expense ranges over the years that may apply?

Is the most tax efficient route to transfer the property to their child by liquidating it, paying any Capital Gains Tax due and then sending the money to their child? Or by giving the property as a gift and possibly paying Inheritance Tax?

Thank you for any advice!

Not necessarily. You are overlooking the fact that the UK parents are probably not domiciled in the UK for tax purposes, so liquidating the property and banking the money abroad, then making a gift to children, may well attract no inheritance tax liability even if they die within seven years.

Repairs and refurbishment are unlikely to affect the UK capital gains tax liability, and there is no provision for assuming a level of spending over a period of time. There is a requirement for property gains to be reported:
https://www.gov.uk/guidance/capital-gains-tax-for-non-residents-uk-residential-property

Scrumplestiltskin

Grumpy_chap said:

Gifting the property, or selling and gifting the proceeds won't change the CGT or IHT liability.

Is there some reason the children would wish to have the property instead of the funds?  If the children have the property, they will be likely to accrue a future CGT liability.  I think SDLT will also be payable.

Thank you for your input. No particular reason for keeping the UK property. As the child has forged a life abroad, and only returns to the UK rarely, there is no point in keeping the property even to rent out.

We have had some bad experiences with property management firms (plural) not taking care of the property in their portfolio as well as we would. The most common problem being missing damage incurred by tenants between tenancies, we return the tenants' deposit only to get complaints by the new tenants of problems which we then have to fix out of pocket.

At the moment the property is jointly owned by the parents. IDK if it makes a difference here.

Jeremy535897 said:

Not necessarily. You are overlooking the fact that the UK parents are probably not domiciled in the UK for tax purposes, so liquidating the property and banking the money abroad, then making a gift to children, may well attract no inheritance tax liability even if they die within seven years.

Repairs and refurbishment are unlikely to affect the UK capital gains tax liability, and there is no provision for assuming a level of spending over a period of time.

OK thank you for your advice.