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

Grumpy_chap

silvercar said:

Maybe we should all own it between us, so there would be no accusations of a GWR. I'm confused with this being a GWR, if they own it and have first dibs on when they can use it, so we only use it when empty, why is it a GWR. 

Exactly the same GWR, except smaller as it is now only 2/3rd the value of the holiday home rather than the full value of the holiday home that is a gift.

As for the children having first dibs - that is not what you said upthread is it?

silvercar said:

We have a holiday home abroad that we are considering selling.
If we do sell, we would then buy a holiday home in the UK to make travelling easier than having to fly abroad. 

silvercar said:

The plan was that we would pay all the bills of the property. 

silvercar said:

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 said:

if we are paying all expenses going forward and doing all the paperwork, 

It is clear that this is about you selling your holiday home overseas and buying yourself a new holiday home in the UK.
You may put that in your children's names.
That would be clearly a GWR.

If it is anything other than that then you need to gift the children the money to do with as they wish:
 - You forfeit the choice of location of the new holiday home
 - You cannot stay at the holiday home (which will make your travelling easier)
 - The children might choose a new holiday home in sunnier climes
 - The children can sell the holiday home next month or at any time of their choosing and use the money to do whatever they want - sportscar, round the world cruise, larger house to live in, microlight lessons...

That is as simple as it gets.
Are you gifting the value of the holiday home to your children as a wholly unencumbered gift for the children to do anything they want with?
Are you buying yourself a holiday home (in whoever's name) and applying constraints that this must be kept as the holiday home in X location and you can stay there?  As soon as you constrain any of the items I mentioned, this becomes GWR and remains in your Estate for IHT purposes.  You can achieve the double-whammy of not avoiding IHT but also creating a CGT liability that might otherwise have been avoided had you kept the property until your death.

Also, have you considered what would happen to the holiday home if one of your children pre-deceases you?

saajan_12

silvercar said:

saajan_12 said:

silvercar said:

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.

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.

 

I agree with this in principle, that it shouldn't be a blocker to what you want to do with yoru money, but I think its very much worth worring / planning for. Eg get an agreement in place on what happens in divorce (you can't just say the partner gets nothing, but maybe the others could optionally buy them out but if not everyone agrees to sell). More so to make sure everyones thoughts are aligned and it doesn't become an argument later. 

silvercar said:

penners324 said:

So the kids will have to pay additional SDLT every time they want to buy a new house.

They will have to pay CGT if and it's sold.

It'll become part of their estate, so they would have split their share, in cash, if they get divorced.

It'll likely be seen as deprivation of assets if you go into a care home.

I thought deprivation of assets only kicked in if you showed any signs of needing care at the time of the gift?
In any case, we have sufficient for our care earmarked elsewhere.

Extra SDLT on moving PPR won't apply as they already have a PPR each that they can replace if they decide to move.

We'd be lumbered with CGT on sale, as would they; so that won't make a difference. Same as we'd be saddled with extra SDLT on purchase as would they.

No, the point is it'll presumably be sold one day (likely after your death). If in the kids names they'd pay CGT on the increase from today -> sale, while if in your name then there's 0 CGT from today -> your death date, albeit replaced by IHT. 
You're treating it as saving the whole IHT, but actually you're only saving part, the rest offsets the CGT saving. If you live a long time and hence there's a large gain racked up, the saving could become small. 

There's already one DiL (and grandchild) in the picture, we can hardly make demands at this point. There is no bartering power - "if you divorce I want you to agree X" is an odd conversation to have when she's already part of the family. 

Right, but that's a conversation that needs to be had whenever people jointly own illiquid assets, not only in the context of potential divorce. Even just the two children, if one needs the money, one enjoys the holiday home, going through courts can harm the relationship. Much better IMO if there's some simple write up that says what happens (can be whatever you like, eg if one wants to sell, the others have to buy out or everyone has to sell, or no sales unless everyone unanimously agrees, or whatever. 
If you can't have the conversation, then get something drafted and present it, saying its just to avoid arguments later.