Building a house on land that has been a gift from parents - From Ian

[ianmccormack]

I hope you can help me with a question I have. My parents own a plot of land that I wish to build a house on. My question is this - my parents just want to gift me the land to build the house on - will I be liable to pay any tax if they gift me the land?. Hope you can help?

Ian

[JSK TAXATION]

As usual it is difficult to be definitive because one would need additional information but broadly, a gift of the nature you describe would be a Potentially Exempt Transfer for IHT purposes.

Firstly there would need to be a view taken on the value of the land and this would be best arrived at by a professional valuer and if appropriate would be subject to the agreement of the Capital taxes Office.

The transfer of value, if it is a PET, becomes an Exempt Transfer should the donor survive the gift by seven years.

Should the donor die within seven years of the gift, then the PET becomes a chargeable transfer which is then added to other chargeable transfers made within the seven year period of the donor's demise, and IHT will be payable on the cumulative value.

Some relief is available in situations where the donor dies after 3 years but less than seven years following the date of the gift.

John King ATT
johnking@tax2002.fsnet.co.uk

[Sherlock]

It would also be wise for you to explain to your parents that there may be an IHT consequence of the gift of land.

Depending on how much the land is worth, what it originally cost, how long it has been owned, whether or not it is owned by one parent or both and what Capital Gains Tax reliefs are available there could be some capital gains tax payable by one or both parents. They need to obtain professional advice about this. Although the land will be gifted to you, for tax purposes it is deemed to be transferred at current market value.