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Where Taxpayers and Advisers Meet

Gifting and future tax issues

jer65
Posts:4
Joined:Sat Nov 03, 2018 8:31 pm
Gifting and future tax issues

Postby jer65 » Sat Nov 03, 2018 8:41 pm

Hello

I am planning on buying a house (would be my only property) with about half the value coming from my partner as a gift so it would be a cash purchase. We are not married.
Can you see any tax issues now or in the future?
We are also planning to marry at some point in the future, how would this affect the gifted portion of the property regarding inheritance tax?

Many Thanks

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Gifting and future tax issues

Postby AGoodman » Mon Nov 05, 2018 1:21 pm

The gift would be a PET and a reservation of benefit by your partner so if nothing changed, it would be taken into account on his/her death.

So far as I can work out, getting married wouldn't fix this as the gift was made prior to the marriage.

Interesting issue - not that that is any help to you.

The solution is for her to acquire an equivalent proportion of the property.

jer65
Posts:4
Joined:Sat Nov 03, 2018 8:31 pm

Re: Gifting and future tax issues

Postby jer65 » Mon Nov 05, 2018 2:27 pm

Many Thanks for your reply.
I wasn't aware that the gift would still be treated as a gift (with the 7 year rule) once we married.

Sorry for being dim but what do you mean by your sentence

'The solution is for her to acquire an equivalent proportion of the property.'

Do you mean purchasing an equivalent part of the property?

I think I also read somewhere that HMRC may think that if we marry at some point after the purchase that we used the gift to avoid additional stamp duty and I/we could be charged this later.

Thanks

Jane

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Gifting and future tax issues

Postby AGoodman » Mon Nov 05, 2018 5:03 pm

I just meant that instead of making a gift, your partner should buy the property with you as joint tenants (only if 50/50) or tenants in common. No gift, no tax problem.

Haven't come across the SDLT issue before. HMRC would have to argue that you were actually buying part of the property as nominee for your partner. Not an easy argument to make although you would ideally have another reason for it. They might have an easier case if you transferred a share of the property back to them later on.

jer65
Posts:4
Joined:Sat Nov 03, 2018 8:31 pm

Re: Gifting and future tax issues

Postby jer65 » Mon Nov 05, 2018 5:47 pm

Ok yes just wanted to clarify what you meant, my partner doesn't want to buy another property, already has one.

If we married but the property was only in my name what would happen if I died, could I leave it to him in my will tax free?
I believe if he died and it was 7 years after the gift then there would be no tax implication.

Sorry but each bit of new information I get seems to raise new questions.

Thanks

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: Gifting and future tax issues

Postby AGoodman » Mon Nov 05, 2018 7:22 pm

1. If you died and left it to your then spouse - all fine (other than being dead of course).

General position actually more complicated and potentially unpleasant than I had previously thought.

If he makes you an outright cash gift (to you, with no conditions attached), it will probably not be a reservation of benefit - there is an exception for outright cash gifts. After 7 years, the gift is out of his estate.

The problem is that he could then suffer an annual income tax charge known as pre-owned asset tax (POAT). If the rental value of the share of the property bought with his gift (say 50% if he contributed 50% of the purchase price) is more than £5,000 (so the total rental value of the property would be £10,000 p.a.), then he would be liable to income tax on the perceived benefit. If the total rental value was £15k p.a., and he contributed half, his deemed income would be £7,500 and this would be subject to income tax. HMRC take the view that this tax applies even if he lends you the money.

There are POAT exemptions for spouses but they only apply if you are married when he makes the gift.

More on this here: https://www.taxationweb.co.uk/tax-articles/general/pre-owned-assets-tax-a-practical-update.html

He could make an election to have the gift treated as a reservation of benefit, which would stop the income tax charge, but bring "his" share of the property back into his estate for IHT. It would remain there until the arrangement came to an end, but can follow the money into a replacement property.

It's a crazy tax, I suspect often solved by people not having a clue of the existence of POAT...

jer65
Posts:4
Joined:Sat Nov 03, 2018 8:31 pm

Re: Gifting and future tax issues

Postby jer65 » Mon Nov 05, 2018 7:37 pm

Ok wow, never heard of that tax, will have to check that out.

Think I will have to come back to you once I'm up to speed...

Thanks


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