Selling property to my father.

[shawo]

I want to pass on my current PPR to my father. How can I do this and avoid CGT.

[Nigel Lord]

shawo

If the property has always been your only main residence since it was first acquired, you will have no Capital Gains Tax (CGT) liability on the transfer whether it is gifted or sold for consideration. As you are connected persons, the property will be treated as having been acquired by your father at the open market value at the date of the transfer.

Stamp Duty Land Tax will only arise if there is a consideration or a mortgage. You must apply for deferral on form SDLT60.

You will be treated as having made a Potentially Exempt Transfer (PET) for Inheritance Tax (IHT) purposes. This means that no IHT will be chargeable on the transfer, but some or all of the open market value of the property will be added back to you estate in the event of your death within 7 years less the following taper relief:

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

The property will immediately form part of your father's estate for IHT purposes, and you should consider whether a transfer directly to him is sensible from a tax planning perspective. The use of a discretionary trust would keep the asset out of his estate while preserving PPR Relief if he were a beneficiary and lived in the property as his main residence.

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

[Huw Williams]

Could I add another comment to what Nigel has said.

Whilst the transfer will be a PET for inheritance tax (IHT) purposes in normal circumstances, if you are still living in the property after you have given it away, the gift may well be a "gift with reservation". In other words it is ignored for IHT and the property is treated as if you still owned it for this tax.

There are also some budget proposals about "pre-owned assets" which could mean that you would also be subject to an income tax charge. As these are in the budget, we do not know the precise rules yet.


Huw Williams
217 Musters Road
West Bridgford
Nottingham
NG2 7DT

0115 914 6846

enquiries@huwwilliams.co.uk

[Nigel Lord]

Shawo

Huw's comments are absolutely relevent. I had made the assumption that you were moving from your PPR.

The jury is out regarding pre-owned assets. Percieved wisdom is that it is not the intention of the legislation is to catch outright gifts were no interest in the property remains, rather to stop complex planning schemes where the donor effectively keeps an interest in the assets but avoids the Gift with Reservation Of Benefit (GROB) rules. I do hope the legislation recognises this intention.

Nigel Lord