musing on putting a holiday home in the name of adult kids

silvercar

Just musing at this point.

We have a holiday home abroad that we are considering selling. I know CGT will be payable, here and abroad. If we do sell, we would then buy a holiday home in the UK to make travelling easier than having to fly abroad. 

We are early 60s with 2 adult children in their 30s who are already home owners.

To avoid future IHT (we live near London, so thanks to HPI and having bought young, our estate on 2nd death will be liable for IHT) I am thinking it would be sensible to buy the property in the name of our 2 children, so out of the IHT loop if we survive 7 years.

The property would be kept for the sole use of family, not rented out. Whether the ownership is in our name or our children's name, the property would be available for use by immediate family/ siblings/ niblings only with no rent changing hands.

Any disadvantages tax wise, in putting it in the names of adult children?

Keep_pedalling

As you will benefiting from gift in the form of having unlimited access to the house with no rent being paid this is likely to be seen as a gift with reservation of benefit so would not e subject to the 7 year rule. You could get round that by paying your children full market rent every time use it. Your children are also going to be responsible for council tax and the upkeep of the property.

Brie

Can the kids afford it?  Have you asked if they want to go along with this?

And what happens if one of them gets married/divorced and needs to sell their share?

Woodstok2000

Keep_pedalling said:

As you will benefiting from gift in the form of having unlimited access to the house with no rent being paid this is likely to be seen as a gift with reservation of benefit so would not e subject to the 7 year rule. You could get round that by paying your children full market rent every time use it. Your children are also going to be responsible for council tax and the upkeep of the property.

And likely council tax at a significant premium if this is a second home for them.

p00hsticks

What do the children think about it ? 
As above, who's going to be responsibility for paying the Council Tax (which will almost certainly have a 200% premium) and utility bills ? Do the sums but where I am you'll be talking several hundred pounds a month minimum.   

We've owned a UK holiday home in the past (it's now our main residence) but they can really be a white elephant - a lot of holiday home owners near us are selling up and holiday let owners switching to long term lets. 

Financially, just using a small proportion of the money you'd spend buying and maintaining on a holiday home to pay for holiday stays in different parts of the UK as and when you want is almost certainly a better use of your money.  Or gift the money to your children for them to spend on holidays or other things as they wish. 

Grumpy_chap

silvercar said:

Just musing at this point.

We have a holiday home abroad that we are considering selling. I know CGT will be payable, here and abroad. If we do sell, we would then buy a holiday home in the UK to make travelling easier than having to fly abroad. 

We are early 60s with 2 adult children in their 30s who are already home owners.

To avoid future IHT (we live near London, so thanks to HPI and having bought young, our estate on 2nd death will be liable for IHT) I am thinking it would be sensible to buy the property in the name of our 2 children, so out of the IHT loop if we survive 7 years.

The property would be kept for the sole use of family, not rented out. Whether the ownership is in our name or our children's name, the property would be available for use by immediate family/ siblings/ niblings only with no rent changing hands.

Any disadvantages tax wise, in putting it in the names of adult children?

So, you will sell your holiday home overseas and pay all the taxes that arise.

This will provide you with a lump sum of cash and you wish to be able to pass that lump sum to your two children such that they benefit from the asset value and the potential IHT can be avoided assuming you survive 7 years.

Why not simply pass the children half of the cash value each, with no strings attached?  That way, the two children can make their own decisions as to what they wish to do with the cash value received to suit their own current and future priorities.

What appears to be proposed is to "gift" half the cash value to each of the children but with the reservation that the value has to be used to pay for half of a holiday home which will be made available to you and other family members for use for holidays without charge of any kind.
This is really sounding like a Gift with Reservation (GWR) so would fail to take the value out of your Estate for IHT purposes.

As you and both children are all home owners, second property stamp duty premium will apply on acquisition.

Second-property Council Tax will apply.

CGT will apply on disposal.  The only way to avoid CGT would be if the property is still owned by the (by then) deceased at time of death.

Who has priority in deciding who can take their holiday in the holiday cottage when?  What if the two children and their families and you all want the same October half term week?

What happens if the children divorce / split from their partners and the now-ex wants to claim the quarter value of the holiday cottage as part of the separation?  Would that require a forced sale?

What happens if the children ever need to claim means-tested benefits?  The share of equity in the holiday cottage would be considered as capital and most likely exclude eligibility for means-tested benefits.

silvercar

Keep_pedalling said:

As you will benefiting from gift in the form of having unlimited access to the house with no rent being paid this is likely to be seen as a gift with reservation of benefit so would not e subject to the 7 year rule. You could get round that by paying your children full market rent every time use it. Your children are also going to be responsible for council tax and the upkeep of the property.

The plan was that we would pay all the bills of the property. Paying market rent when we use it would be another way of mitigating a future IHT bill, so that is a positive. When it is empty it is available for any family not just us, but relatives to, so I wouldn't think that would create a liability on us directly.

silvercar

Brie said:

Can the kids afford it?  Have you asked if they want to go along with this?

And what happens if one of them gets married/divorced and needs to sell their share?

It wouldn't cost them, as we would pay for everything.Woodstok2000 said:

Keep_pedalling said:

As you will benefiting from gift in the form of having unlimited access to the house with no rent being paid this is likely to be seen as a gift with reservation of benefit so would not e subject to the 7 year rule. You could get round that by paying your children full market rent every time use it. Your children are also going to be responsible for council tax and the upkeep of the property.

And likely council tax at a significant premium if this is a second home for them.

It is a second home for any one of us, that's why I mentioned they were already home owners.

We would be replacing the costs of a home abroad with one in the UK and willing to pay the associated costs. Our travel costs would be lower and easier as we age. 

silvercar

Grumpy_chap said:

silvercar said:

Just musing at this point.

We have a holiday home abroad that we are considering selling. I know CGT will be payable, here and abroad. If we do sell, we would then buy a holiday home in the UK to make travelling easier than having to fly abroad. 

We are early 60s with 2 adult children in their 30s who are already home owners.

To avoid future IHT (we live near London, so thanks to HPI and having bought young, our estate on 2nd death will be liable for IHT) I am thinking it would be sensible to buy the property in the name of our 2 children, so out of the IHT loop if we survive 7 years.

The property would be kept for the sole use of family, not rented out. Whether the ownership is in our name or our children's name, the property would be available for use by immediate family/ siblings/ niblings only with no rent changing hands.

Any disadvantages tax wise, in putting it in the names of adult children?

So, you will sell your holiday home overseas and pay all the taxes that arise.

This will provide you with a lump sum of cash and you wish to be able to pass that lump sum to your two children such that they benefit from the asset value and the potential IHT can be avoided assuming you survive 7 years.

Why not simply pass the children half of the cash value each, with no strings attached?  That way, the two children can make their own decisions as to what they wish to do with the cash value received to suit their own current and future priorities.

What appears to be proposed is to "gift" half the cash value to each of the children but with the reservation that the value has to be used to pay for half of a holiday home which will be made available to you and other family members for use for holidays without charge of any kind.
This is really sounding like a Gift with Reservation (GWR) so would fail to take the value out of your Estate for IHT purposes.

As you and both children are all home owners, second property stamp duty premium will apply on acquisition.

Second-property Council Tax will apply.

CGT will apply on disposal.  The only way to avoid CGT would be if the property is still owned by the (by then) deceased at time of death.

Who has priority in deciding who can take their holiday in the holiday cottage when?  What if the two children and their families and you all want the same October half term week?

What happens if the children divorce / split from their partners and the now-ex wants to claim the quarter value of the holiday cottage as part of the separation?  Would that require a forced sale?

What happens if the children ever need to claim means-tested benefits?  The share of equity in the holiday cottage would be considered as capital and most likely exclude eligibility for means-tested benefits.

The reason not to give them cash is we are doing this because we want a second home in this country instead of abroad. The question is whether we our future estate would gain by putting it in the name of the children now to keep it out of the 2nd person's estate. It isn't about giving money to the children, this is all about the best way to own it.

Partner issues are a valid point, but if you worried too much about that, you would not help your adult children in the way you would like. At the end of the day, in accepting a gift from parents, the kids have to accept that if their relationship collapsed they would have the consequences, but we can't not give them anything in case they break up and their ex's end up with some of our money. Otherwise they wouldn't have got on the property ladder in the first place.

 

silvercar

p00hsticks said:

What do the children think about it ? 
As above, who's going to be responsibility for paying the Council Tax (which will almost certainly have a 200% premium) and utility bills ? Do the sums but where I am you'll be talking several hundred pounds a month minimum.   

We've owned a UK holiday home in the past (it's now our main residence) but they can really be a white elephant - a lot of holiday home owners near us are selling up and holiday let owners switching to long term lets. 

Financially, just using a small proportion of the money you'd spend buying and maintaining on a holiday home to pay for holiday stays in different parts of the UK as and when you want is almost certainly a better use of your money.  Or gift the money to your children for them to spend on holidays or other things as they wish. 

Your points are why we are considering selling the place abroad. With a whole world to explore, we haven't used it enough and so thinking of selling for somewhere nearer to home that we can get to more often. I doubt the costs of maintaining the property will be more than we currently spend on somewhere we don't use. Plus lower travel costs and easier travelling.

Grumpy_chap

silvercar said:

The reason not to give them cash is we are doing this because we want a second home
 

In that case, this is very clearly a GWR and will do nothing to remove the value from your Estate for IHT purposes.

Use your money to buy yourself what you need and what you want while you are alive and keep full control of your own destiny.  It will give you the maximum choice in all ways - including, should it ever be required, care needs that may arise in the future.

silvercar said:

Partner issues are a valid point, but if you worried too much about that, you would not help your adult children in the way you would like. At the end of the day, in accepting a gift from parents, the kids have to accept that if their relationship collapsed they would have the consequences
 

Except, the children would not face the consequences in the case of the ex taking the holiday home - you would face the consequences through the loss of your holiday home.  In fact, for your children, the share of the value of your holiday home is an easy "give away" in a separation should that event arise where your child then suffers not for that asset loss.