SLDT and property ownership

jgcfmt

As a 51 y.o I am buying a new family home (circa £290k), whilst keeping my current home to rent out. In addition, 4 years ago my mum signed her home over to me , so if I buy a new home it looks like I will take a hit with 2nd home SLDT.

What are the implications of:
1. Gifting 290k to my 3 children so they buy the home. All of them would be 1st-time buyers with a 1/3 share in the new property and so should avoid SLDT (but would there be IHT implications in doing that? I assume it would count as my estate losing £290k)

2. Once they become the legal owners, have the children transfer the property to me. (Property would not have gained much value in such a short time so no capital gains for them? Also I have regained an asset worth £290k so undoes IHT implication of step 1)

3. I assume I would then be liable for CGT if I ever sold the property, based on value-added from the point at which it was transferred to me but if I never sold it that wouldn't be an issue would it?

Can it be that simple? I know there'd be solicitors fees etc for conveyancing of the purchase and subsequent transfer of ownership to me from my children but surely the fees would be lower than the SLDT bill.
interested in your thoughts....

Keep_pedalling

You mother was very foolish to gift her house to you and what you propose is equally foolish. As it stands (unless your mother is paying you full market rent) her house will never drop out of her estate as far as IHT is concerned and at the same time forms part of your estate. If it needs to be sold in the future you are also looking at a CGT liability, and if your mother ever needs residential care it is going to be regarded as deliberate deprivation of assets unless she has significant other assets.

Your proposal would lose your children their first time buyer status, and all four of you could find yourselves facing charges of tax evasion. 

Bookworm105

keep pedalling has flagged the main failings of your property portfolio

you would be robbing your 3 children of their FTB status when they come to genuinely need their own places to buy. 

Flugelhorn

just recognise that what mother did was not a good idea, pay the tax and don't cause your children more problems

bobster2

jgcfmt said:

2. Once they become the legal owners, have the children transfer the property to me. (Property would not have gained much value in such a short time so no capital gains for them? Also I have regained an asset worth £290k so undoes IHT implication of step 1)

I'm not an expert but using proxies to purchase a property on your behalf to avoid SDLT sounds like an SDLT avoidance scheme.

HMRC are currently still pursuing people who got involved in some more complex and high profile SDLT avoidance schemes as far back as 2003.

HMRC may deem that your children simply held the property on implied trust for yourself.

saajan_12

jgcfmt said:

As a 51 y.o I am buying a new family home (circa £290k), whilst keeping my current home to rent out. In addition, 4 years ago my mum signed her home over to me , so if I buy a new home it looks like I will take a hit with 2nd home SLDT.

So we're talking about ~10k of SDLT (would have been 2k if you didn't own mum's house). Can you transfer mum's house back to her? What was the reason for this in the first place - avoiding inheritance tax (which has not worked) or mortgage affordability, or something else?

jgcfmt said:

What are the implications of:
1. Gifting 290k to my 3 children so they buy the home. All of them would be 1st-time buyers with a 1/3 share in the new property and so should avoid SLDT (but would there be IHT implications in doing that? I assume it would count as my estate losing £290k)

2. Once they become the legal owners, have the children transfer the property to me. (Property would not have gained much value in such a short time so no capital gains for them? Also I have regained an asset worth £290k so undoes IHT implication of step 1)

The implication is you being liable for the 10k SDLT. You "gifting" the money and them "gifting" the house is a purchase and will be immediately seen through. Its no different to an employee "volunteering" their time and the employer "gifting" money.. its pure tax evasion which is illegal. 

jgcfmt said:

3. I assume I would then be liable for CGT if I ever sold the property, based on value-added from the point at which it was transferred to me but if I never sold it that wouldn't be an issue would it?

Can it be that simple? I know there'd be solicitors fees etc for conveyancing of the purchase and subsequent transfer of ownership to me from my children but surely the fees would be lower than the SLDT bill.
interested in your thoughts....

No, if you live there as your main home then no CGT due. You would be liable for CGT on Mum's property, which is why I suggest transferring that back to her. 

TheJP

This sounds all sorts of trouble.

@SDLT_Geek can advise in more detail but wouldnt you still be liable for SDLT when your children transfer ownership to you?

jgcfmt

I know that by my mum transferring her house to me and not paying rent it is classed as a gift with reservation of benefit and therefore remains part of her estate for IHT calcs, I've factored that in ok, but surely full transfer of assets to children/grandchildren is a reasonable way to reduce IHT (with cognisance of the 7-year rule)

Would gifting the two properties of which I currently have ownership to my children mean I could buy another property without having to pay 2nd home SDLT?

What you're also telling me is that:

• Their FTB status is compromised so in the future they will never be able to benefit from FTB exemptions on SDLT or preferential mortgage rates etc

• If they sell those properties in the future they will be subject to CGT on any rise in value from the point of taking ownership- would that still be the case if they were living in the property at the time of sale?

silvercar

• If they sell those properties in the future they will be subject to CGT on any rise in value from the point of taking ownership- would that still be the case if they were living in the property at the time of sale?

  
  

Under current rules, which could change, at time of sale they would calculate the gain linearly for their period of ownership and be exempt for the time it was their principal residence and the last 9 months of ownership. Also they each have a CGT allowance, currently £3,000.

Bookworm105

jgcfmt said:

I know that by my mum transferring her house to me and not paying rent it is classed as a gift with reservation of benefit and therefore remains part of her estate for IHT calcs, I've factored that in ok, but surely full transfer of assets to children/grandchildren is a reasonable way to reduce IHT (with cognisance of the 7-year rule)

Would gifting the two properties of which I currently have ownership to my children mean I could buy another property without having to pay 2nd home SDLT?

What you're also telling me is that:

• Their FTB status is compromised so in the future they will never be able to benefit from FTB exemptions on SDLT or preferential mortgage rates etc

• If they sell those properties in the future they will be subject to CGT on any rise in value from the point of taking ownership- would that still be the case if they were living in the property at the time of sale?

signing over mother's home to your children will trigger CGT payable by you on the gain during your ownership. As it is a transfer to connected person the gain calculation will be based on market values 

you appear to be clutching at straws to avoid SDLT by either paying another tax instead or shifting tax liability on to your children for a later date, when the amount they will pay then will be a lot more than you will pay now.

If the property is the child's main/only home for their entire ownership period then no they will not face CGT, but do they want it as their first main home?

user1977

This really sounds like the tail wagging the dog...