Gifting a BTL Property to my son

[othen]

I am 56 and retired (with a comfortable occupational pension, but not a higher rate income tax payer). My son will soon be 18 and I would like to gift him either all or a part of a BTL house I own. I bought the BTL for £108k, it is probably worth £170k now, it has an interest only BTL mortgage of £60k and makes about £7.5k/year. My options seem to be either:

a. Gift the whole property to my son, pay CTG on about £50k after my annual allowance at 29%. I have not looked into transferring the BTL mortgage to my son, so I might have to settle it as a gift as well. My son would then take the income from the house whilst studying at university.

b. Become tennants in common, I am guessing that if I gifted 50% of the house to my son now (the remainder staying in my estate until he inherits it) I would only have to pay CGT on half the capital gain (about £20k after my annual allowance) now? I think it would be a fairly straightforward matter to add my son to the BTL mortgage (which may help with his credit rating whilst studying) and he would have an income tax allowance (whilst earning very little at university) to use against his half of the rental income. I am guessing that if we came to sell the house (perhaps at the end of his studies - if he settled in a different area) we would both have an annual allowance to offset the CGT in that year, or alternatively if he then chose to live in the house for a qualifying period his portion would be free of CGT?

It would be helpful to know whether my assumptions and conclusions for each course of action are correct. The second course is more attractive, if it is feasible (and sensible) then I would need some professional advice to execute it, what sort of professional should I turn to?

[RMC]

If the rental property were vacant its market value for CGT purposes would indeed be similar to that of a similar flat sold on the open market, all other things being equal.

However, protected tenancies are worth 65—70% of the open market value. This can alter dependant upon location and condition of the property together with the tenant profile.

You can submit your valuation giving full relevant info to HMRC for review / approval before completing your CG computation:
www.gov.uk/government/uploads/system/up ... 1/cg34.pdf

[maths]

You can gift any % you wish. This can be done by a simple declaration of trust.

However, for interest on any borrowing to be a deductible expense your son would need to be on the legal title with you.

CGT will arise on any gift and an IHT exposure may be in point if you died within 7 years (although the nil rate band may cause any charge to be zero).

SDLT shouldn't be a problem.

[othen]

Thank you for both replies.

RMC: the property is let under a periodic leasehold, so there is no protection issue - it could be vacant after 2 months notice if required (the tenant is excellent).

maths: from your answer it looks like my second option (gifting half the property, becoming joint tenants or tenants in common and continuing to run the rental together until such time as my son may need the house or the capital) is both feasible and sensible. The final part of my question was what sort of professional would I need to execute this. It would seem to me that any solicitor would be able to handle the declaration of trust and the conveyancing, would that be correct?

I note maths' comment about SDLT not being an issue - I imagine this is because the value of the gift would be less than the threshold (which is another advantage of gifting only half the property).

IHT would remain an issue as I have other properties and capital - but I'm not planning on dying just yet.

From RMC's reply I think I would be able to handle the CGT return myself.

Many thanks.