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Where Taxpayers and Advisers Meet

Property gift

sunrise21
Posts:8
Joined:Wed Aug 06, 2008 3:27 pm
Property gift

Postby sunrise21 » Tue Jul 31, 2018 10:40 pm

Hi,

I was wondering if a kindly soul could check my thinking and perhaps suggest a better alternative if one still exists....

My brother and sister bought a house in London 25 years ago. The mortgage is now paid off. All 5 siblings have lived in the house at one time or another - it has never been rented out. My sister has no other property but has recently moved out of the house and is likely to buy her own house with her own family.

Option 1
If she sells me her half of the house I will pay SDLT + 3%, as I have my own family home. She pays no CGT as it is her PPR

OR

Option 2
If she gifts it to me, I pay no SDLT right now, but if We were to sell in the future I would effectively be liable for CGT on the whole value of my half of the property. She pays no CGT as it is her PPR.

Am I right?

What is the most tax efficient way to structure ownership of the house so that the amenity is available to all my children and my siblings' children much the same way as it has been available for my own generation.

We do not intend to sell, but what would the implications of sale be, or the implications of mortgaging the property to release some equity?

Thanks for your time - I worry we may have missed the boat in Terms of doing this tax efficiently

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Property gift

Postby maths » Wed Aug 01, 2018 10:32 am

Gifting or selling by sister to you of her 50% gives rise to a CGT charge on her part but not if the property qualifies as her private residence during her period of ownership. Also SDLT + 3% charge on your part if you purchase it.

Gift by sister in principle exposed to an IHT charge (depends upon numbers).

On any future sale of the property you would be subject to CGT on your 50% as would the other 50% owner subject to private residence relief.

Not sure what you are trying to achieve; sale or gift wouldn't prevent the historic arrangements continuing.

sunrise21
Posts:8
Joined:Wed Aug 06, 2008 3:27 pm

Re: Property gift

Postby sunrise21 » Wed Aug 01, 2018 7:40 pm

Thanks for replying.

We are trying to convert the ownership of the property (which is in essence a property that is used for the good of the whole extended family) out of my sisters name (so she can buy her 'own' house without the 3% SDLT 2nd home charge) and into mine without a tax charge to either of us. As long as we are not planning to sell it in the near future it seems that her gifting it to me will achieve that.

We were until recently planning to sell it and split the proceeds between all siblings but the sale has fallen through. As we are essentially now planning on holding it on trust for the next generation we thought about going down the trust route, but I see no way of doing that without a (substantial) tax charge. Hence the change of ownership via gift route instead. Just wasn't sure if I was right about my assumptions - no SDLT payable by me, no CGT payable by my sister.

I had not thought of IHT. If she survives 7 years presumably this is irrelevant?

Any trust option that would achieve the same outcome?

Many thanks again for reply.

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

Re: Property gift

Postby AGoodman » Fri Aug 17, 2018 10:46 am

A later sale by you would be subject to CGT but only on the difference between the sale price and the market value on the day you received it.

If you wanted a "trust" solution then several of you could transfer it to a discretionary trust for the family but you should definitely take advice because it is not a perfect solution. Issues to consider would include:

- if the value was more than £325,000 per transferor (known as a "settlor"), there would be an initial charge of 20% of the excess.
- a 6% charge of the excess on each 10 year anniversary (which could be substantial if property values shot up) and possibly a smaller charge on a winding up.
- if the property were rented out, the income would be attributed to the settlors (assuming they remained beneficiaries)
- the admin for a trust not generating any income or gains is still small but this could be ramped up over the coming decades.

Much depends on the values.


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