Do gifts cause CGT or IHT

[shaftin2003@yahoo.co]

Hi,

My question is this

I Have 2 sons and if I own a property with a value of £400k and I sell this. Can i give one son a gift of £150k and buy another property for my other son in his name(and have a mortgage in his name), I would be resident in this house. What taxes would i incur.
Many thanks in advance for looking at this question, any help would be useful.

Regards

Shah

[Nigel Lord]

Shah

If you have always lived in the present property as your main residence throughout ownership, there is no Capital Gains Tax (CGT) on sale.

If you gift £150,000 to your son, this will be treated as a Potential Exempt Transfer (PET) for Inheritance Tax (IHT) purposes.

If you gift a further £200,000 to your other son, and he uses this to buy a house, this will also be treated as a PET even if he allows you to live there rent free (but you must have legal interest in the property or a right to recover the gift.

PETs do not give rise to an IHT liability when they are made, but would be added back to to your estate in the event of your death within 7 years of the gift. The amount added back will reduce during the seven years in line with the following table: in line with the following table:

0 - 3 years = 0%
3 - 4 years = 20%
4 - 5 years = 40%
5 - 6 years = 60%
6 - 7 years = 80%
7 years + = 100%

You may wish to protect against an IHT charge arising in the event of your death within this period by taking out reducing term life cover.

If you require any further assistance please do not hesitate to contact us, and we will be happy to act on your behalf.

Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852
mail@lordassociates.co.uk