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

p00hsticks

PeterGD said:

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.

How does any simple simple gift of £220,000 cash not result in a large income tax bill  for him that year? 

Why would it ? A gift of money is not taxable income.... 

dimbo61

I think this is a poor idea
Do your sons want to be Landlords?
Why not sell and pay  the capital gains tax 🤔 
You can then gift your 2 sons an equal amount 
You could ask them to look at Offset mortgages with YBS and friends and family 

silvercar

PeterGD said:

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...? 

No income tax on gifts. You just give the money to your eldest and tell your solicitor to register the property in the name of your other son. A separate letter documenting this as a gift would be worthwhile.

With so much money potentially moving around, you would be better placed to speak to a solicitor or accountant. You could possibly look at beneficial ownership criteria rather than buying and selling to transfer these half shares around or trusts. It may be that it would be better putting the ownership of the rental in the name of another entity (trust or company) then you can change ownership just by changing the company ownership details, so avoiding buying and selling the property and incurring stamp duty and CGT. 

Keep_pedalling

PeterGD said:

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...? 

I really think you should take some professional advice regarding IHT planning rather than play musical houses and picking up CGT liabilities with each transaction. Where you can cash gifts are a better option than illiquid assets like rental properties. 

As others have said there is no IT on cash gifts.

theoretica

So the elder two have actually had cash from you - by a convoluted means - for home buying and improvements. But you want to give one of your younger sons who is trying to buy now the complications of half a property?  Seems to me that giving him cash would be fairer and easier, and probably more appreciated at this moment - even if you need to consider selling a property to fund it.

Titus_Wadd

I don't know about property law and even less about tax; but I do know about families.  Is it a no strings gift?  It sounds (correct me if I'm wrong) as though it's a property still very much under your control, just the rent and any income tax burden falling on the temporary-owner sons. 

In theory, when the two first sons "owned it" could they have sold the property jointly on the open market (if vacant for the sake of a simpler scenario)?  Could the next pair of brothers do this if they wanted to?  Never underestimate the parent pressure when faced with a plan like this, even if you explain they can be honest and give their opinion.  Family dynamics are powerful and not always altruistic.

If I were the son in London, I would probably prefer to have a cash gift, to allow me to buy an place unencumbered by help-to-buy or shared ownership schemes.  Still in the voice of this brother (and possibly the other brother too), could I raise a buy-to let mortgage against the rental property to boost my deposit to by in London?  Or just sell up?  Could they relieve you of the role of landlords if they want to?  Just because the scheme worked for the first two sons, doesn't mean it's the optimal approach for the next two sons; their financial situations are very different and they are likely very different people.

There seems to be a lot going on here beyond the tax benefits to their retired parents.  I'm not saying you are wrong or misguided but, second time around, this might be a scheme that causes these brothers to fall out with you or with each other.  I would hate to have been tied in a financial relationship with one of my siblings; even though I love/loved them dearly and believe my parents, had they suggested a similar scheme, would have been trying to treat us all the same with an offer like this.

Are you prepared to share your bought-back half-share of the rental with the third son only and gift the London son cash to help towards his deposit if that is what he wants/would serve him better?  Would then the sharing son start thinking a gift would be better for him too?

Sounds like a recipe for potentially family rifts; have you considered these scenarios and risk?

sheramber

Is the total ,  over the years, of legal fees and stamp duty and capital gains tax profitable in term of saved inheritance tax?

PeterGD

Some interesting comments by several respondents.
To some extent gifting property does reveal our influence in promoting a good diversification of our boys future financial assets. All of them have long since set up (with my direct assistance and advice) self-invested ISAS, some from childhood, with values now in excess of £50K. Two have already used some of these funds to boost deposits on their first homes but all have learned the principle of not putting all one's eggs in one basket and are continuing to invest in them as and when funds are available. So although Titus is correct to some degree, they do have free rein once gifted anything.   However as with any parents there is  always the concern over whether they would spend a significant portion of any large cash sum on something imprudent or fail to save appropriately/efficiently. Far too many families have been destroyed by the consequences of over generous parenting imho: eg by facilitating the purchase of a sports car whilst in someone's twenties.
Sounds a bit overbearing but its an oft repeated apologue/cliché. One also has to mitigate against possible break-ups/drugs/mental illness/disagreements etc especially when we pop our clogs . Much of that will be done by means of a Discretionary Trust (as indicated) for the bulk of our estate: we have taken some very expert advice. Part of that advice given our assets was to free our kids from the necessity of 'midlife extra pension saving' by leaving our SIPP pots untouched to pass onto them:  incredibly inheritance tax efficent. 

So overall, although our sons might prefer large cash gifts there are good reasons for not making life far too easy for them.
  
Moreover there is, it seems to us, a general tendency for young people in their 20s/30s to be short-termist (the buy now pay later, live for the moment ethos), whereas we come from a save first generation with nothing really owed on anything (other than  secured loans/mortgages at low fixed rates for as long as possible). Credit cards are convenient but one ALWAYS pays off the entire bill monthly etc.   We are succesfully passing that attitude onto them. Would that the rest of society did likewise 
We have considered the potential for family rifts but our sons all get on well and are well aware of our reasoning. All are fine with it. 
However we would indeed happily realize any property asset we share/own to help fund anything within reason..... but not if it was a Maserati or or an 'umissable business opportunity' e.g. Bitcoin "investment".
Whilst some might call it controlling  it's more about them respecting and taking our advice and us guiding them.  Anyway enough now, time to prepare for 'The Big One'. The discussion of which doesn't belong on here....Thankyou for your comments, we will certainly enact a couple of them.