Tax on Gift /Transfer of property

[aog]

I have a small dilema. My Parents are transferring their house over to me at nil value. Property was bought for £40k 8 years ago and now worth £200k. I have been resident at the property since acqusition along with my parents up till a yr ago. My qustion is what are the IHT and CGT implications of this. Would I be deemed to have acquired property at no cost hence tax on £200k gain is payable. Is there a tax effient way of transferring the asset over

[accountant@uktaxshop]

The transaction itself should not create any liability to CGT, as you parents have been resident in the property, full PPR relief should be available.

From an IHT point of view this is a "PET" a potentially exempt transfer. This means that so long as your parents are healthy and survive 7 years, it will not remain within their estate. During this period a stepped scale is in operation.

However the thing you should be looking toward is what will happen when you come to sell the property. As you have now moved out, you will not be able to claim relief on any future capital gains. You may be able to see others on the boards here in similar situation 5-10 years later who now have significant gains due.

What I would suggest is some proper IHT planning of your parentÂ’s estate, to minimise the CGT and IHT due. Something along the lines of a discretionary trust in favour of your parents, should (if done right!) keep the property out of the estate at death, and leave you with an asset with no CGT when your parents eventually move
out.

A small investment in professional advice in this area could save you a great deal in unnecessary taxation. I have a good contact who specialises in this area if you are interested.

Regards

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436

[aog]

Thanks for the information. I forgot to mention that neither of my parents are resident or domiclied in the UK. The property is now empty and the plan is to remortage in my name and rent out, hence the transfer of asset. You are quite right that I am more concerned with the CGT on sale of asset. I am assuming any potential CGT will be based on any gain over the current value which is 200k and not when it was acquired for 40k. Is this so?

[Nigel Lord]

aog

You will be deemed to have acquired the proeprty at the open market value at the date of the transfer, as your parents and you are connected persons.

It would be advantageous for you to reside in the property after it is transferred to you and prior to letting it out. This will entitle you to Principal Private Residnce (PPR) Relief for the period of residence and the last 36 months of ownership. It will also entitle you to Residential Lettings Relief. These would be very valuable if you made a significant capital gain.

You state that your parents are non-resident and not UK domiciled, and therefore you are not concerned about IHT. A word of caution here, if they have spent more than 17 years out of the last 20 in the UK they will be deemed UK resident for IHT purposes (up to 3 years in the future). It is possible that IHT could therefore be charged on the gift if they did not survive 7 years. This could be protected against by using a discretionary trust or by taking out life cover. You should also be aware that non-domiciled individuals still pay IHT on UK situs assets. This may be relevant if there are other assets located in the UK.

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