Inheritance Tax/ Capital Gains And Gift Tax

nigelclose

Hi guys,

I have a question which may involve any one of the follow:-

INHERITANCE TAX/ CAPITAL GAINS AND GIFT TAX

My father and I own a house together and both of our names are on the deeds.
I want to remove my fathers name from the deeds as a mutual agreement and leave only my name on the deeds.
Is this liable to Gift Tax? Is this seen as a Gift? Am I going to be hit for Capital Gains tax?

Any help with this question will be much appreciated.

Thanks

Pal

Moved to the cutting tax board, as it is not a pension issue.

Pinkleylandii

Hi

There will be CGT implications on your father transferring his half share in the house to you. The CGT exposure will depend on a number of factors. Did you father ever live in the house as his own or main residence during his ownership. If so he will be able to claim principal private residence relief on the period the property was lived in by him and he will also get credit for the last 36 months of ownership as being PPR even if he did not actually live there at that time. There are other possible ways at getting PPR relief, ie if he was in job-related accomodation which prevented him living in the house, but I we will not go into this at present.

If you care to give me some more details re the original purchase cost and date, likely market value at date of transfer and what he has being doing with the property while in his joint ownership, I will provide you with some tax figures.

Re the IHT, the value of his half share of the property gifted to you is a potentially exempt transfer (PET) and will fall out of your father's estate on his death if he survives 7 years from the date of the transfer. If he dies during the 7 year period, then the value of the gift fixed at the date of transfer, will be added to his assets at death (net of loans, debts and funeral costs) and where the value of the estate exceeds the nil rate band (currently £275,000), then the excess is taxed at 40%.

The IHT liability can be reduced by taper relief if say your father had died after 3 years of the transfer but before the end of the 7 year period.

There is legislation to stop individuals gifting assets and living say 7 years and in the meantime, continuing to live in the property. This is known as a 'Gift with Reservation' (GVR) and will make the original lifetime gift void. This arrangement may not apply in your particular case but is worth bearing in mind. The property's value at the transferor's subsequent death would instead be used to form part of their estate on death, instead of the value fixed at the date of the lifetime transfer. A way of getting around this 'GWR' would be for your father to pay you a market rent to continue living in the property.

Remember this is the IHT position based on current legislation and may change in the future.

Cheers

John

Cook_County

John

Your answer is much more clearly drafted then I could hope to write.

However a couple of questions:

1. You seem to be assuming that the property is owned 50% each. Does it matter who contributed what?

2. Does it matter if held as joint tenants as against tenants in common which you see to have assumed?

3. Where does the POAT fall if father comes to visit in the future?