Transferring 50% of house ownership to child

axil23

I intend to transfer 50% of my current residence to my son, who currently resides with me. I plan to continue residing in the house for the next two to three years before downsizing and subsequently gifting the remaining 50% to him. However, as I am still occupying the property I will be required to pay market rent to him which is why I can't transfer fully to him. 

I have a couple of questions regarding this transaction:

1. Are there any potential drawbacks to this approach?

2. Upon the eventual sale of the property, where would his capital gains liability commence? Since he acquired the house at no cost, would he be subject to capital gains tax? Additionally, are transfers between family members considered at zero or market rates? 

user1977

axil23 said:

1. Are there any potential drawbacks to this approach?

Taking a step back, what's your thinking behind this approach? If you're planning to gift the remaining 50%, is there much point in paying market rent on the initial 50%?

I don't see any CGT implications if it's always been your main residence and it remains your son's main residence until he sells.

axil23

Basically as I thought if we both own 50% then I don't have to pay him rent and I also have a residence which I need for now. 

So are you saying if I gift him 100% he will not pay CGT even though he got the house as a gift? 

Voyager2002

Why are you doing this? If in the future he buys his first home, he will pay more stamp duty because of this.

Keep_pedalling

As he is living with you gifting half the house to him he will not have any CGT liability because it is covered by the primary residence exemption. It will also not be classed as a gift with reservation while you still live there, but it would if you gifted the whole thing. Same applies if you gift him the remaining share when you move out.

Presumable you still have sufficient assets to buy yourself a new home when you downsize in a few years time so deliberate deprivation of assets should also not be an issue. 

Marcon

axil23 said:

Basically as I thought if we both own 50% then I don't have to pay him rent and I also have a residence which I need for now. 

If you didn't gift anything to him until you move out/sell the house the same would apply. What exactly are you trying to achieve here? If you are concerned about IHT, have you factored in both the nil rate band and the inheritance nil rate band?

Maybe some proper professional advice would be a good idea before you do something irrevocable which might not achieve what you're hoping for?

Olinda99

yes as above - what exactly are you trying to achieve tax wise etc ?

axil23

I own a pair of investment properties and a house. This exceeds the combined inheritance tax allowance of £1 million by approximately £300,000. To mitigate this, I plan to transfer half of the property to my son, which will bring our total assets below the inheritance tax threshold for the time being. Upon downsizing and purchasing my house, I will transfer the remaining 50% of the property, ensuring that my total assets remain below the £1 million cap.

Is this a sound strategy? 

Keep_pedalling

axil23 said:

I own a pair of investment properties and a house. This exceeds the combined inheritance tax allowance of £1 million by approximately £300,000. To mitigate this, I plan to transfer half of the property to my son, which will bring our total assets below the inheritance tax threshold for the time being. Upon downsizing and purchasing my house, I will transfer the remaining 50% of the property, ensuring that my total assets remain below the £1 million cap.

Is this a sound strategy? 

That sounds like a good plan the sooner you transfer the 50% the sooner the 7 year clock starts ticking. Alternatively if you have enough income / savings you could transfer the whole lot and pay full market rent for while you remain there. 

RAS

It's a relief to see estate planning that is necessary and could achieve its intentions. 

TheSpectator

Does the son want this though and losing any FTB perks in  future.