Bare trust

PoGee

I'm single divorced. All assets are my own. No maintenance etc. received.
Can I place my rental property in a bare trust? Absolute gift to kids. I don't know anything about trusts. 
Would it be ok to leave main residence out of trust?
Would I pay CGT when putting rental into bare trust?
What are legal fees of a bare trust (initial and ongoing)?
Can kids live there rent free?
Would they pay any taxes on selling the rental, once I died?
My main residence is valued at £320k and rental £200k (my main residence from late 80s till mid 90s.)

Brie

Others will be along that know more but I thought there was a lot of problems with putting properties into trusts do to solicitors (or more likely trust firms) messing up all the paperwork.  

So all I can say is proceed with caution and I do believe that depending on your circumstances this might be considered deprivation of assets should you need help paying for care at some point.  But the experts will know.....

PoGee

Thanks for reply Brie. I wouldn't put main residence in trust so I'm not hiding anything from care home fees, besides I'm kind of lucky as one kid has care home management training. Said they'd look after me in my old age....hope so anyway.

eskbanker

PoGee said:

I wouldn't put main residence in trust so I'm not hiding anything from care home fees

The fact that you wouldn't be disposing of both properties doesn't in itself mean that it wouldn't be seen as deprivation of assets, but perhaps you could share more detail of what it is that you are hoping to achieve by this arrangement?

xylophone

Why a trust (and a bare trust at that) for adult children?

https://www.saffery.com/insights/articles/gifting-property-to-children/#:~:text=A gift of property is,the gain deemed to arise.

poseidon1

Your 2nd property is an investment property and any gain made over the ownership period will render you liable to capital gains tax on any gift from you. So this may be an appreciable upfront cost to you.

Not at all clear why you are considering bare trust ( rather than outright gift), if both children are over 18. If they are not, a bare trust automatically terminates when each attains age 18. Until then, you remain directly liable to income tax on the rents, eventhough the rents do not belong to you ( this is the parent/settlor Income tax rules - google parent settlor rules).

Finally once the children have absolute ownership at age 18 ( and directly taxed on rents), they can decide between themselves whether to continue to run it as a rental property or move in themselves. However do be aware that by gifting the property to them they no longer qualify as first time buyers for stamp duty purposes, and will be outside any other government incentives accorded to such buyers. In this regard, you might not be doing them any favours. Worth also  mentioning, such a gift may also adversely affect any university loans/grants they may be entitled to.

In view of the above, may be worth highlighting your reasons for making such a substantial gift at this time, given the potential adverse tax consequences not to mention depriving yourself of a valuable resource come your eventual retirement.

Keep_pedalling

If you depend on the income from the rental property gifting it won’t avoid any IHT as it will be a gift with reservation of benefit so it would be rather pointless.

What do you have in the way of liquid assets?

PoGee

I don't know too much about trusts. I read somewhere that bare trusts were the easiest to set up. I could do without the rental income as working. I'm thinking about possible changes this October. Property has tenants so then there's that aspect. Might just leave as is and save rental income for another 3 years to pay the hike in ctg on the horizon. Kids too happy at home......not too keen on taking on responsibilities of being a home owner. I'm probably too simplistic in my thinking re the saving up rental income to pay CGT hike. I've enough cash to pay the CGT as it stands at moment. On a rough calculation, if CGT follows income tax brackets, there would be an extra £14k, which is where the 'might as well leave it for 3 years', comes in, by which time I hope kids want to move out.

Keep_pedalling

If you did gift this property to your children you would only need a bare trust if any of them were under 18.

Having said that the gift would have a negative impact on your children in that they would all loose their first time buyer status and would have to pay an additional 3% in SDLT on purchase of their first home (but second property). It would be much better to sell (perhaps when your present tenants move on) and gift cash that they could use as a deposit for a first home.