Gifting a property - Scotland (Father to Son)

2143lewis

Hi all.

Hope you are well. 

I live in Scotland. My dad is wanting to gift me his home. It is worth around £40-45k. He got it for £18k back in the '90s. He's 61. Retired. The mortgage is paid off. He has the deeds to the house in his name.

He doesn't want to leave it in a will as he had issues when his mother passed and doesn't trust them...

I checked over the paperwork from the solicitor to check details were correct and noticed additional charges. 

Additional Dwelling Supplement of 4% - From what I gathered online this doesn't apply to gifted properties but does to additional dwellings (I have a mortgage) but doesn't ... which is it? Just don't want him paying for something he doesn't have to

Inheritance tax - This is the big one that concerns me but none as everything I read conflicts with another site or information.

Some say there would be a 40% tax to pay on the difference between the 18k purchase price and the valuation of £40-45k (£22.000) = £8.800 !!!! 
Some say this would only apply if the estate was worth more than £325.000? 
Some say it would only apply the first 7 years of it being gifted? 


Which is it? 

I appreciate the kind gesture and it would help my family in the future but neither of us has £9000 lying around nor do we want to give that to the government. 

Keep_pedalling

If he gifts you his home and continues to live in it without paying market rent then it never leaves his estate for IHT purposes, but it sounds like his estate is well below NRB exemption so that does not matter.

What really matters is that giving your home away is nearly always a very foolish thing to do. He would be vulnerable to loosing his home if you died or were made bankrupt. His house would also be considered a marital asset if you were to be divorced. Capital gains tax may become an issue when the house was eventually sold.

The transfer would also be treated as deliberate deprivation of assets if he ever needs residential care. 

As for his concerns about wills, are you an only child? 

lookstraightahead

What about deprivation of assets (not sure what the law is in Scotland) 

propertyrental

2143lewis said:

...
He doesn't want to leave it in a will as he had issues when his mother passed and doesn't trust them...
Sorry but this is... bonkers. Provided the will is drawn up properly (not DIY) this is the way to go. Persuade him.

I checked over the paperwork from the solicitor to check details were correct and noticed additional charges. 

Additional Dwelling Supplement of 4% - From what I gathered online this doesn't apply to gifted properties but does to additional dwellings (I have a mortgage) but doesn't ... which is it? Just don't want him paying for something he doesn't have to
Does not apply to gifts. See
https://revenue.scot/taxes/land-buildings-transaction-tax/lbtt-legislation-guidance/additional-dwelling-supplement-ads-technical/ads-exemptions-reliefs

Inheritance tax - This is the big one that concerns me but none as everything I read conflicts with another site or information.

Some say there would be a 40% tax to pay on the difference between the 18k purchase price and the valuation of £40-45k (£22.000) = £8.800 !!!! 
You are confusing Inheritance Tax with Capital Gains Tax.
Assuming the property is his main residence, CGT will not apply if/when the property is gifted.
However, unless you yourself move in (main residence) CGT will apply to you if/when you sell.
IHT (subject to allowances/thresholds) will apply on his death, whether he gifts the property to you or keeps it in his name, subject to the 7 year rule and provided he does not continue to live there.

Some say this would only apply if the estate was worth more than £325.000? IHT is more complicated than that, but as above, if it's due, it will be due when he dies (not when he gifts to you) irrespective of what he does.
Some say it would only apply the first 7 years of it being gifted? 
Yes, gifts drop out of IHT liability after 7 years (and there's a reduction as time passes eg after 5 years etc)

I appreciate the kind gesture and it would help my family in the future but neither of us has £9000 lying around nor do we want to give that to the government.

There are other factors to consider though. Will it remain his main residence or will you be moving in and he lives elsewhere? If he remains there it will be a 'gift with reservation' and the 7 year rule will not apply.
'Deprivation of Assets' might also apply.....
And it leaves him very vulnerable. Worst case, imagine
* you get divorced and your ex claims half 'his' home and insists on selling
* you become bankrupt....
* you and dad fall out....

The perceived 'benefits' of this plan are almost non-existent. The risks are real.
(Note: HMRC and council social services are not stupid. If they were, every elderly person would get rid of their property by gifting to offspring to avoid care costs, Inheritance Tax etc....

See also
https://www.gov.uk/inheritance-tax

2143lewis

Keep_pedalling said:

If he gifts you his home and continues to live in it without paying market rent then it never leaves his estate for IHT purposes, but it sounds like his estate is well below NRB exemption so that does not matter.

What really matters is that giving your home away is nearly always a very foolish thing to do. He would be vulnerable to loosing his home if you died or were made bankrupt. His house would also be considered a marital asset if you were to be divorced. Capital gains tax may become an issue when the house was eventually sold.

The transfer would also be treated as deliberate deprivation of assets if he ever needs residential care. 

As for his concerns about wills, are you an only child? 

He will continue to live in the property. 

I am not married and I have explained this all to him but he doesn't care. In his eyes him doing right by me. I have put this off for a few years but he's determined to get it done NOW. If he is doing it I would rather know what we are getting into.

To complicate it even more I have a brother and neither of us has him as our dad on our birth certificates.... Cut a long story short he wasn't really around when we were younger.

He's a long way away fro residential care but you never know with these things. 

Annisele

It sounds as though, at best, he'd be handing you a capital gains tax bill. At worst is, well, quite a lot worse than that - for both you and him. Plus what about your brother? Does he get anything in this scheme, and if not, what will that do to both your and your father's relationship with him?

Could you pay for your father to see a solicitor and talk about this scheme of his? Chances are they will put him straight.

Your father probably does need a will though. If he's not on your birth certificate, and there's nothing else to show that he is legally your father, then you're not going to inherit through the laws of intestacy (that is, if there's no will you won't inherit anything automatically as his child). But he can give his money to whoever he wants in a will.

user1977

Annisele said:

It sounds as though, at best, he'd be handing you a capital gains tax bill.

Probably worse would the additional 4% LBTT on any property the OP later buys (assuming they move out before dad does) - plus (if they've never owned property before) this would use up their First Time Buyer "virginity" for LBTT purposes.

Could you pay for your father to see a solicitor and talk about this scheme of his? Chances are they will put him straight.

OP, can you clarify what you mean by the "paperwork from the solicitor"? Do you mean your dad is already in the middle of doing this and is about to sign?

Your father probably does need a will though. If he's not on your birth certificate, and there's nothing else to show that he is legally your father, then you're not going to inherit through the laws of intestacy

To be fair, I think that's only an issue if somebody else went to the trouble of challenging the appointment of executors and/or where the inheritance was going, and there are ways of proving paternity - but it would be a hassle.

But would be helpful to know why dad doesn't "trust" Wills, as remedying his paranoia might be a better solution to the whole thing.

propertyrental

Yes as pointed out, if he gifts you the property and you do not then live there YOU will
a) be liable for CGT if /when you sell (as it's not your main residence
b) be liable for 2nd property 4% Additional Property Supplement if you subsequently buy anther property

The fact that he is not your (registered) father is really irrelevant provided he writes a will. Wills can leave money to anyone - even complete strangers (provided they are clearly identified.) But without a will, the rules of intestacy would apply, which dictate who inherits. There is a guide here:
https://www.citizensadvice.org.uk/family/death-and-wills/who-can-inherit-if-there-is-no-will-the-rules-of-intestacy/
but without a will you'd not inherit since you (appear to be) unrelated.

I agree with others it would help to know what issues he had with his mother's will, but whatever they were, a decent solicitor could ensure the will reflected his wishes.

I also wonder why he does not want to leave anything to your brother....??

He really should get legal advice. And you should consider the impact on both of you of this gift idea.

ps the fact that you are not married now does not mean you might not get married in the future.

user1977

propertyrental said:

There is a guide here:
https://www.citizensadvice.org.uk/family/death-and-wills/who-can-inherit-if-there-is-no-will-the-rules-of-intestacy/

Or more usefully for Scotland, this:

https://www.gov.scot/publications/death-scotland-practical-advice-times-bereavement-revised-11th-edition-2016-9781786522726/pages/19/

but without a will you'd not inherit since you (appear to be) unrelated

But they are related, the only issue might be proving it. There's no inheritance rule that the father needs to be named on the birth certificate (or conversely, that being named on the birth certificate means they really were the father!). And like I said above, that would only be a problem if somebody else in the family really wanted to argue that they weren't father and son.

2143lewis

Annisele said:

It sounds as though, at best, he'd be handing you a capital gains tax bill. At worst is, well, quite a lot worse than that - for both you and him. Plus what about your brother? Does he get anything in this scheme, and if not, what will that do to both your and your father's relationship with him?

Could you pay for your father to see a solicitor and talk about this scheme of his? Chances are they will put him straight.

Your father probably does need a will though. If he's not on your birth certificate, and there's nothing else to show that he is legally your father, then you're not going to inherit through the laws of intestacy (that is, if there's no will you won't inherit anything automatically as his child). But he can give his money to whoever he wants in a will.

See I get paying the additional 4% as I already have a home.

The 40% inheritance tax is the issue. I think he's very naive in his understanding. He thinks this is his home. He paid for it. He's legally owned it since 1998 He can do what he liked with it. Forgetting the government doesn't see it that way. 

When it comes to my brother under no circumstance is he to get anything from him. 

 user1977 said:

Annisele said:

It sounds as though, at best, he'd be handing you a capital gains tax bill.

Probably worse would the additional 4% LBTT on any property the OP later buys (assuming they move out before dad does) - plus (if they've never owned property before) this would use up their First Time Buyer "virginity" for LBTT purposes.

Could you pay for your father to see a solicitor and talk about this scheme of his? Chances are they will put him straight.

OP, can you clarify what you mean by the "paperwork from the solicitor"? Do you mean your dad is already in the middle of doing this and is about to sign?

Your father probably does need a will though. If he's not on your birth certificate, and there's nothing else to show that he is legally your father, then you're not going to inherit through the laws of intestacy

To be fair, I think that's only an issue if somebody else went to the trouble of challenging the appointment of executors and/or where the inheritance was going, and there are ways of proving paternity - but it would be a hassle.

But would be helpful to know why dad doesn't "trust" Wills, as remedying his paranoia might be a better solution to the whole thing.

I already have a home so I would be subjected to the 4% LBTT which I accept. 

Paperwork from the solicitor was printed emails. He doesn't like things on computers. I just had a read-through of the costs. Thankfully he hasn't gone through with it but he's pushing hard so I want some advice before proceeding. 

His distrust of wills is to do with his mother's passing. I can't remember the exact ins and outs but he is 1 of 3. He has a brother and sister. The will was for my dad and his brother to receive 50/50. His sister was to be left out completely due to get being in prison and his mum raising her children due to past incidents. Long story short she contested and won. There were also issues with a pension she had the whole thing got very messy.

He sees the same thing happening with his estate. 

Keep_pedalling

IHT is not an issue unless he is sitting on a large pile of savings. He has a £325k nil rate band and the house would also be exempt as its value is well below the residential NRB therefor IHT would only kick in if he has over £325k in savings.

The issue with his mother’s estate is almost certainly to do with Scotland’s very different inheritance rules to the rest of the UK, in Scotland you cannot simply disinherit children who have legal rights on any movable estate (anything except the home and other land). This will also apply to his estate so your brother would have a claim on any savings he has. He can write a will leaving everything to you but your brother has the right to claim 50% of his movable estate.