Gifting property to your children

by **indiouk** on Tue Dec 20, 2011 12:23 pm

I hope you can help i’m looking at reducing my tax bill and at present have several properties which myself and my wife rent out.
We recently purchased a flat and house in 2009 which are presently occupied and we receive the rent, they cost £130000 each at the time and looking at similar properties in the area they don’t appear to have gone up in value since.
What are the benefits and downfalls of gifting the properties one each to my children who are both in fulltime education and are over 18, i.e. inheritance tax, capital gains tax, rental income etc.
Any advice would be great.

by **tax_schmax** on Tue Dec 20, 2011 12:38 pm

Why are you thinking of giving them property? Is it to save you tax or help your children along?

by **indiouk** on Tue Dec 20, 2011 12:55 pm

yes both

by **Peter D** on Tue Dec 20, 2011 1:10 pm

If they are unconditional genuine gifts then they will be deemed to be PETS and remain in your estate for 7 whole years for any IHT purposes. The rental income will belong to the children and be taxed using there personal tax allowance. If there has been no significate rise in the value of the property then there should be very little if any CGT. If you gift the properties conditionally, i.e you retain the rental income, then they will be gifts with reservation of benefit and the properties will remain in your estate. You may wish to seek face to face professional advice on this matter as a Trust may be the best way forward.

Regards Peter

by **indiouk** on Tue Dec 20, 2011 1:57 pm

can i build in a clause that if ever they marry and get divorced the property would not be part of the divorse settlement?

by **tax_schmax** on Tue Dec 20, 2011 2:51 pm

A trust would add a layer of both cost and complexity but could be used to provide the benefit to your bloodline only. It is quite common to use trusts to follow bloodlines and therefore remove the potential for your gift to be part of a divorce settlement. The wording of the trust would be important to get crystal clear in this instance. Also, the inclusion of a trust has some tax disadvantages when compared to an outright gift. Income tax and CGT may well be higher. Most trusts are taxed as if they are additional rate taxpayers, i.e. 50% on income and 28% on capital gains. You'd need to weigh up the tax cost versus the added security.

by **indiouk** on Fri Feb 24, 2012 12:04 pm

i have been told that if i gift the property to my children and they are rented out, then the tax on the rent will be taxed at my taxable rate not my childrens although they will get the rent, can anybody clear this up for me.

by **Peter D** on Fri Feb 24, 2012 2:33 pm

That is not correct. The properties would no longer be your legally or beneficially so the rental income goes to the property owner, i.e. the children. Regards Peter

by **section 44** on Fri Feb 24, 2012 3:05 pm

indiouk wrote:i have been told that if i gift the property to my children and they are rented out, then the tax on the rent will be taxed at my taxable rate not my childrens although they will get the rent, can anybody clear this up for me.

An error perhaps triggered by the misnomer of an adult child.