Capital Gains Tax on a gifted property

Superchunk72

My parents own two adjacent cottages without any outstanding mortgages on either. They live in one, I live next door with my partner & children. We want to swap as they are looking to downsize & we require the extra space & plan to renovate the property in the future. They want to gift me the house they reside in, they will retain ownership of the house I currently live in.I want to become the legal owner of their gifted property to enable me to secure finance to pay for the building costs.

Can the house be gifted without incurring Capital Gains Tax? The house being gifted is my parent's main home, so is Principal Private Residence Relief (PPR) applicable under these circumstances? Or can the transfer be made by simply filling in relevant Land Registry forms in without requiring a solicitor? Thanks in advance for any advice.

dimbo61

As you say they are gifting you there main residence and moving into the rental property next door.
Could be inheritance tax issues if they die within 7 years but don't think they would pay Capital Gains tax.
However you need to involve a solicitor to make sure everyone involved is aware of any potential taxes and all the documentation is done correctly.
Maybe speak to an accountant as well.
Could you get a mortgage to buy the property ?
I am thinking of the YBS offset mortgage with Mum/Dad opening an offset account to reduce the interest you pay 

Superchunk72

Thankyou for the response.They are gifting me the house they currently live in & swapping with the house next door which me & my family currently reside. We don't pay rent, they own both properties. What documentation are you referring to please? Deeds / Land Registry? I don't need to buy the property they are giving it to me.

dimbo61

Your parents need expert advice RE depravation of assets and care home needs
Tax planning, 
Getting all the legal paperwork right so you can raise a mortgage on the property for the building works you want done.

lookstraightahead

Have you looked into the deprivation of assets? This is likely to be the biggest issue.

do they have enough money to finance their care (both of them) from the house they will be living in and savings etc? 

Keep_pedalling

9dimbo61 said:

As you say they are gifting you there main residence and moving into the rental property next door.
Could be inheritance tax issues if they die within 7 years but don't think they would pay Capital Gains tax.
However you need to involve a solicitor to make sure everyone involved is aware of any potential taxes and all the documentation is done correctly.
Maybe speak to an accountant as well.
Could you get a mortgage to buy the property ?
I am thinking of the YBS offset mortgage with Mum/Dad opening an offset account to reduce the interest you pay 

Gifting is nearly always a good thing as far as IHT is concerned. If their total assets exceed £1M then this has the potential to reduce any IHT liability, if they don’t then it is going to be more or less neutral. The only risk is that if the house is worth more than their combined NRBs (assuming it is a joint 50/50 gift) then IHT will become payable on the first death so that will need to be covered by other assets or insurance.

Deprivation of assets is only an issue if they have nearly all their assets tied up in these two properties, if they also have significant savings to cover a couple of years of self funding residential for one of them then it should not concern you. If the gift leaves then asset rich and cash poor then look at purchasing the house at a heavily discounted price instead.

One thing you should do is get an accurate paid for valuation that can be used should either parent die within 7 years of the gift.

Keep_pedalling

lookstraightahead said:

Have you looked into the deprivation of assets? This is likely to be the biggest issue.

do they have enough money to finance their care (both of them) from the house they will be living in and savings etc? 

They would only need liquid assets to cover one of them, the second will still have a property that will no longer be required if they need residential care as well. 

lookstraightahead

Keep_pedalling said:

lookstraightahead said:

Have you looked into the deprivation of assets? This is likely to be the biggest issue.

do they have enough money to finance their care (both of them) from the house they will be living in and savings etc? 

They would only need liquid assets to cover one of them, the second will still have a property that will no longer be required if they need residential care as well. 

Yes agreed,  although it can equate to hundreds of thousand of pounds worth of liquid assets needed for just one of them. 

Op, do your parents have enough money that is not tied up in the houses? 

saajan_12

Superchunk72 said:

My parents own two adjacent cottages without any outstanding mortgages on either. They live in one, I live next door with my partner & children. We want to swap as they are looking to downsize & we require the extra space & plan to renovate the property in the future. They want to gift me the house they reside in, they will retain ownership of the house I currently live in.I want to become the legal owner of their gifted property to enable me to secure finance to pay for the building costs.

Can the house be gifted without incurring Capital Gains Tax? The house being gifted is my parent's main home, so is Principal Private Residence Relief (PPR) applicable under these circumstances? Or can the transfer be made by simply filling in relevant Land Registry forms in without requiring a solicitor? Thanks in advance for any advice.

Its nothing to do with whether you have a solicitor or how simple the transfer is - CGT is a self declared tax, based on the gain made on any assets you dispose of unless exempt. Parents are disposing of a property they own (whether gifting or selling is irrelevant). They'll get relief for the time they've lived there as their main private residence (or get an exemption if that covers teh whole time they've owned it).