Main residence rules?

Grumpy_chap

theartfullodger said:

Depends on CGT rules when sold - not now.  Expecting CGT rules and rates to get tougher.  So if you can tell us rates when they sell we'll see what we can do.

Except, the OP will be liable on the first transfer under the CGT rules "now" given that the gifting is proposed to happen "now".
Then the daughters will be liable under any future rules which, as you say, may be different from "now" and indications are that CGT will only get tougher.

Sam_666

A good example where  diy tax avoidance plan can end up in massive  tax  bill.
Little knowledge can be damgerous knowledge.

Phoenix72

Baaed on tbe OP's other thread on gifts from surplus income then they should really be getting paid for professional advice before trying to implement DIY stuff that will really backfire.

_Penny_Dreadful

This is one of the least tax efficient property plans I’ve seen in a while. The Treasury thanks you. 

1) You and your husband create a CGT liability for yourselves when you dispose of the properties. 

2) You create a CGT liability for your daughters. 

3) Your daughters lose their FTB status for SDLT. 

If the goal is to distribute family wealth whilst you’re still alive sell the investment properties and gift your daughters the proceeds from the sale and then you won’t fall foul of 2 and 3 above. “Renovating,” a property does not increase the value unless you are adding size eg an extension or are taking an unmortgageable property and making it mortgageable. 

heavenlywoman

Thanks to those that have posted various replies,

Our motive in planning to do what we proposed are as follows;

We have planned for quite sometime to pass the property onto our children, to give them a good start and to , hopefully, mitigate some IHT liability

With the change of government we are concerned that CGT rates will increase significantly and this may occur with the next budgetary statement (30th October)

Given that date we don't have time to give the tenants notice etc and sale before then. So we could sell now with tenants but this will affect the value and / or saleability of the property or we could try proceec with giving notice to the tenants etc but this will most likely mean that the sale would go through after any change to CGT and a bigger bill on the whole gain.

If we gift the property now we can be a lower rate at the point we gift it , now and then will have to accept that if our daughters sell the property afterwards, possible soon afterwards then they will have to pay a higher rate of CGT on the gain , which will be some as the value will have gone up with vacant possession.

The other alternative is we keep it forever and never pay the CGT on the gain! Forever is a long time though....

Any further thoughts / advice most welcome

Bookworm105

heavenlywoman said:

Any further thoughts / advice most welcome

I suspected the forthcoming (certain!) increase to CGT rates was a key driver of your plans. There is nothing extra to add, you are playing guessing games with relative margins of tax and sales values, so no one can advise which is the "most lucrative" course of action given the restricted timescale before rates rise.

What your inheritance will be worth to your daughters is a guessing game.
Will daughters successfully evict current tenants and be able to sell within your hoped for 1 - 2 year timescale?
Will property prices have survived tax changes so when they sell they would get more than you would by selling now?
Daughters will lose SDLT FTB status currently worth £8,750 each as a saving on the max value of property allowed for retention of FTB status (£625,000). Is SDLT going to change as well as CGT?????
Will IHT ever be abolished so keeping it "forever" would result in zero tax and maximum inheritance?

Put some numbers together and guess what you think the world will look like in 1 - 2 years time...

On your current trajectory:

• you will pay CGT on the gift
• you (both) will need to live for a further 7 years from date of gift for the value to leave your respective estate for IHT purposes (it's irrelevant if daughters have sold up the property before then)
• your daughters will become the new landlords (no doubt you can educate them what to do)
  
• your daughters will have to evict the tenant
• your daughters will  be able to sell (probably) liable to CGT rather than income tax (although by then CGT rate hopefully will be no greater than income tax rate anyway). 
• Living there as main residence (and BOTH doing so convincingly) will reduce but not eliminate their CGT liability
• the "inheritance" will be eroded by the second set of fees for the second sale
• your daughters will need to educate themselves on what is a capital cost when it comes to the refurbishment expenditure or their CGT liability will be wrong.
  
  
  

saajan_12

heavenlywoman said:

Thanks to those that have posted various replies,

Our motive in planning to do what we proposed are as follows;

We have planned for quite sometime to pass the property onto our children, to give them a good start and to , hopefully, mitigate some IHT liability

With the change of government we are concerned that CGT rates will increase significantly and this may occur with the next budgetary statement (30th October)

Given that date we don't have time to give the tenants notice etc and sale before then. So we could sell now with tenants but this will affect the value and / or saleability of the property or we could try proceec with giving notice to the tenants etc but this will most likely mean that the sale would go through after any change to CGT and a bigger bill on the whole gain.

If we gift the property now we can be a lower rate at the point we gift it , now and then will have to accept that if our daughters sell the property afterwards, possible soon afterwards then they will have to pay a higher rate of CGT on the gain , which will be some as the value will have gone up with vacant possession.

The other alternative is we keep it forever and never pay the CGT on the gain! Forever is a long time though....

Any further thoughts / advice most welcome

Is this a normal AST tenancy, fully up to date on the paperwork, rent paid on time and at market levels? If so, the difference in sale price will likely be relatively low - an investor would value as normal, just you'd lose out on some of the residential market. 

For that difference, I can't see it being worth the negatives, of daughters losing their FTB status for SDLT and extra legal work to transfer it over.