CGT/IHT - my father owns my home and wants to gift it to me

HarveyHumphries

For 20 years I've been living in a house owned by my father (but never his PPR), and paying him rent. He's 73 now and wants to gift it to me. He paid £90k for it and it's now worth £600K.

I understand from previous threads on this issue that there should be no IHT liability providing he lives for 7 years. Is that right?

What about CGT? Will he have to pay it? If I resell it, will I?

CLAPTON

he will be liable to CGT when he gives it to you
as follows

600,000
less 90,000
less costs (not much)
so gain is 510,000
less his CGT allownace 9600
so net gain is
which if transferred after 6th april will be taxed at 18%
so 90,072

you have no liability for CGT


as far as IHT is concerned then this is a potential exempt transfer so yes if he dies withion 7 years then the value of the property 600k would be added to his estate and the excess over his IHT allowance would be taxed

silvercar

I understand from previous threads on this issue that there should be no IHT liability providing he lives for 7 years. Is that right?

Correct, though there would be CGT on transfer. As clapton says this could amount to about £90k.

If he retains the property, there is no CGT on death, so the only tax payable would be IHT. Depends on the size of his estate which works out cheaper.

All a balance of risks. If he transferred the property to you and paid the CGT and then failed to survive 7 years there would be IHT as well. You may be able to take some sort of assurance to cover this risk.

HarveyHumphries

Thanks for the replies - very helpful (though of course slightly deflating... I can't really expect him to pay 90K for the privilege of giving me a house, even if he had 90K...).

Two things:

(i) Do the deductible "costs" referred to by posters above relate to what's been spent on the house since he bought it? If so, could be some leeway - it was a shell when he bought it, and around 100K in all has probably been spent over the years.

(ii) I've read somewhere that CGT isn't paid on business assets. My dad's a landlord, with a few houses he rents out to students: if he consolidated these, along with the house I live in, into a company, could he then transfer the house to me as a business asset?

CLAPTON

you could of course get a mortgage for 90k and pay the tax for him


the costs allowable are 'capital ' like costs and not maintenance
so if he installed central heating (an improvement) then that would be allowable
but if he replaced the boiler then that would be a maintenance item and so not allowable

however, presumably he declares the rent to the HMRC as income and he can offset maintenance items against the rental income.

clearly you haven't been reading the newspapers for tha last few months... i.e. about the '80%' increase in CGT for business assetts in the new budget

in any event I think (but can't remember fully) that residential renting is not treated by the HMRC as a business but this is otherside my area of knowledge

lucien2k

Don't forget stamp duty on transfer of property.

HarveyHumphries

CLAPTON wrote: »

you could of course get a mortgage for 90k and pay the tax for him


the costs allowable are 'capital ' like costs and not maintenance
so if he installed central heating (an improvement) then that would be allowable
but if he replaced the boiler then that would be a maintenance item and so not allowable

however, presumably he declares the rent to the HMRC as income and he can offset maintenance items against the rental income.

clearly you haven't been reading the newspapers for tha last few months... i.e. about the '80%' increase in CGT for business assetts in the new budget

in any event I think (but can't remember fully) that residential renting is not treated by the HMRC as a business but this is otherside my area of knowledge

Thanks again. No, I've never been up to speed with fiscal affairs. :embarasse
So, that's goodbye to the business-asset scheme. On the other hand, the house has been capitally-improved to the max (had an outside toilet and no bathroom when I moved in).

And naturally, I had indeed forgotten stamp duty... :rolleyes: