Buying son's property to rent :tax implications

Daniel54

A slightly complicated situation

My son has a property he lived in for 9 years and has let out for the past 2 years.He is in a new purchased property now.

The old property is unmortgeable in current conditions (above a shop).No interest shown at auction.Rented out at over £1k per month

My wife and I ( amicably and not legally separated) are considering buying the original flat from him for cash so he can get "get rid" ( and reclaim the two property SDLT)

My tax questions are as follows, acknowledging we will have to end up taking regulated advice:

1) I will contribute more but can we own the property 50/50,I would think so

2) I am happy for my wife to receive the rental income going forwards - what do we need to do to achieve this

3) As we would be buying the property I assume this would not be regarded as a gift for IHT purposes

There are other questions I have in mind ,but these are the main ones.

Thanks in advance

Jeremy535897

As you and your wife are married, you can make gifts to each other without inheritance tax implications, even if you were legally separated.

There is nothing to stop you making a cash gift to your wife and you then buy the property as tenants in common in whatever proportions you see fit (say 90% her 10% you).

You will have the higher rate SDLT issues your son currently has.

If you and your wife don't live together, you may already be regarded as separated for tax purposes. If not, you would need to file a Form 17 to avoid being taxed 50:50 on the income even if it was owned 10:90.

It may well be that you are happy to make a cash gift to your wife and simply buy the property 50:50. But then you will be taxed on 50% of the income. The only way to avoid that is to split the ownership differently.

saajan_12

Daniel54 said:

A slightly complicated situation

My son has a property he lived in for 9 years and has let out for the past 2 years.He is in a new purchased property now.

The old property is unmortgeable in current conditions (above a shop).No interest shown at auction.Rented out at over £1k per month - okay, how does that stack up as a % return on the property value.. could son just sell to a 3rd party and invest the money instead? 

My wife and I ( amicably and not legally separated) are considering buying the original flat from him for cash so he can get "get rid" ( and reclaim the two property SDLT) - okay, but then you'll have to pay the normal + extra 3% SDLT (he only reclaims the +3% albeit on a different value) 

My tax questions are as follows, acknowledging we will have to end up taking regulated advice: 

1) I will contribute more but can we own the property 50/50,I would think so - yes if you wish. Decide whether you want this to be as joint tenants or tenants in common. 

2) I am happy for my wife to receive the rental income going forwards - what do we need to do to achieve this - you'd need to adjust the ownership split to say 99/1 in her favour. Depending on marital status and other circumstances, you may want to gift her the money to buy 99% or buy 50/50 and then transfer 49% to her.. 

3) As we would be buying the property I assume this would not be regarded as a gift for IHT purposes - no IHT for son's estate (ie if son dies), assuming you buy it at market value. You & wife would then own the house so if either of you die, its in your estate and would attract IHT. 

There are other questions I have in mind ,but these are the main ones.

Thanks in advance

Comments in line. 

Albermarle

3) As we would be buying the property I assume this would not be regarded as a gift for IHT purposes

Clearly if you purchase something, it is not a gift. You are exchanging one financial asset ( cash) for another ( property). Of course the price paid should be seen as realistic.