Implications of Lifetime Gifts of a half share in a Residential Property on Stamp Duty etc

PeterGD

As pensioners with no need of the income (and to mitigate IHT) , we are contemplating making a lifetime gift of a rented bungalow in Cheshire (valued at £440K) to two sons (50% each)
One already owns a house, so no questions arise,  but the poorer other is part of generation rent in London, having always rented,  who is hoping to purchase his first property (probably a flat) using one of the many shared ownership schemes at some point in the next year or so. He has never resided in aforesaid bungalow. It attracts a rent of £12,000 p.a. and has a good current tenant.
My questions relate to how this gift may affect his liability for Stamp Duty and eligibiliity for a government Lifetime ISAs Bonus and shared ownership schemes when purchasing his first property to live in as a home. Government guidance is vague as the bungalow he may soon part own will be gifted rather than purchased, the market value of his halfshare and is somewhat flexible/debateable but is of the order of £200K. Would it be advisable to only give this gift AFTER his completion date for his first purchased home to avoid a possible triple whammy of ineligibilities? Delaying it would of course result in his loss of any rental income/value gain for that period, so it becomes a question of cost efficiency. What is the most cost-effective way to proceed, or is there an alternative we have not considered?

user1977

He'll no longer be a first time buyer for stamp duty (and possibly other) purposes if he already owns a property - and there is no way for him to ever regain his FTB "virginity". Plus when he buys he would have to pay the additional rate of SDLT (or equivalent) as his first "proper" house will be an additional residential property.

Plus does he actually want the liabilities/bureaucracy etc of being a landlord if his own finances aren't substantial?

housebuyer143

Someone might be able to confirm but potentially both will be liable to pay the additional rate of stamp duty if you gift them the house after the second has bought.
You definitely don't want to give it to him before he buys he will lose all FTB status.

Keep_pedalling

Do you have alternative assets you could gift instead? Apart from the loss of FTB status, you will also be facing. CGT liability on the transfer of ownership, and you will also be tying then together financially which might not be the greatest idea (one wants to sell the other doesn’t)

PeterGD

user1977 said:

He'll no longer be a first time buyer for stamp duty (and possibly other) purposes if he already owns a property - and there is no way for him to ever regain his FTB "virginity". Plus when he buys he would have to pay the additional rate of SDLT (or equivalent) as his first "proper" house will be an additional residential property.

Plus does he actually want the liabilities/bureaucracy etc of being a landlord if his own finances aren't substantial?

To give further details: we actually have 4 sons and have already lifetime gifted and then bought back that bungalow from our elder pair of sons. So this gift to the younger pair is to give them an equivalent lifetime gift. In reality we have always managed the bungalow's letting as their parents, it being very convenient and local to our home. It's not a lot of work with a good tenant. 
Originally we had intended to give different properties to the two pairs, but the flaw was they had substantially different valuesand rental values.....so when one of the elder pair needed to realize this gifted asset to fund a house move it seemed simpler for us to buy his share back enabling this duplicate lifetime gift approach. Obviously we paid stamp duty and they paid CGT but it worked out ok and ensured his house move went without hitch. It means we will have treated our 4 sons even-handedly with all getting this half share in their early thirties...
I think the solution is to give the younger pair their halves of the bungalow in different gift transactions at the best, most appropriate times, for each of them, but wanted to check if this was correct. A lot more land registry form-filling and another set of fees but simpler and better overall. 
Our son's all get on of course and if there ever is any disagreement with what to do with such a property it's relatively easy to find a win/win workaround. A good local rental property that accrues value is always a useful diversifying asset in addition to ISAS/SIPPS and your own home of course...

PeterGD

Keep_pedalling said:

Do you have alternative assets you could gift instead? Apart from the loss of FTB status, you will also be facing. CGT liability on the transfer of ownership, and you will also be tying then together financially which might not be the greatest idea (one wants to sell the other doesn’t)

See other post.. Agreed re tying coment, (but see what happened previously): we actually look on that as a good thing keeping our family together and as the four of them will indeed need to be, as the beneficiaries of a Discretionary Trust encompassing the bulk of our estate when we eventually pop our clogs.........

PeterGD

To give further detail: we are currently purchasing the other half share of this same bungalow from our other older son: Stamp Duty at higher rate of £6,600 and he will be paying CGT of course, (again in order to fund his Primary residence improvements).
All still worthwhile, of course with IHT a far bigger hit! 
Is there any other alternative solution? 

silvercar

PeterGD said:

To give further detail: we are currently purchasing the other half share of this same bungalow from our other older son: Stamp Duty at higher rate of £6,600 and he will be paying CGT of course, (again in order to fund his Primary residence improvements).
All still worthwhile, of course with IHT a far bigger hit! 
Is there any other alternative solution? 

Lots of other alternatives. The most obvious one is to give the younger pair money rather than shares in the property. That way the one who has yet to buy keeps his FTB status.

You can buy the half share off the older son in the name of the son who you now want to own the half share, which will save some stamp duty and costs in making 2 transactions.

PeterGD

silvercar said:

PeterGD said:

To give further detail: we are currently purchasing the other half share of this same bungalow from our other older son: Stamp Duty at higher rate of £6,600 and he will be paying CGT of course, (again in order to fund his Primary residence improvements).
All still worthwhile, of course with IHT a far bigger hit! 
Is there any other alternative solution? 

Lots of other alternatives. The most obvious one is to give the younger pair money rather than shares in the property. That way the one who has yet to buy keeps his FTB status.

You can buy the half share off the older son in the name of the son who you now want to own the half share, which will save some stamp duty and costs in making 2 transactions.

I like the sound of the latter but how does one actually do that as a single transaction in practical terms dealing directly with the land registry? 
The 'most obvious' one has a couple of large potential flaws. How does any simple simple gift of £220,000 cash not result in a large income tax bill  for him that year? One would also have to realize more assets to fund it and it's not exactly a good time to be selling ISA funds. Also how is that equitable to the previous pair of sons...? 

ArbitraryRandom

Given the amounts you're talking about and the complexities of UK tax law, I'd think an hour with an accountant would be the best way to ensure you minimise any tax due and don't fall foul of anything unexpected? 

km1500

there is no stamp duty payable on gifts of property

if you do it before completion of his purchase he will have to pay the additional 3% stamp duty on his purchase as he will already own a property (share of)