Gifting fractions of a BTL property

[Cloisters]

Hi,

I bought a BTL property in 2000. It is held as tenants in common 50/50 with my wife.

If we were to sell, under current legislation we would incur significant CGT.

I am considering gifting fractional shares, perhaps each year to our children - after we have redeemed the mortgage (to avoid SDLT on transfer).

If my understanding is correct, as long as each child's share is less than £40,000 it will not impact any future moves they make in relation to additional SDLT for second homes, two of our children do not yet own properties.

If we ensure that the share transferred would only incur gains up to our joint annual threshold each year, I think we can avoid or minimise any CGT.

There would no doubt be overheads of gift declarations, tax returns and and income being distributed in future, but as long as we survive 7 years (under current legislation), this seems a good way to avoid CGT.

I have tried to find articles on this sort of thing to no avail, which I am surprised about as I would have thought it a common way if legitimate?

Any thoughts including affirmation to the idea would be greatly appreciated please.

[someone]

I do recall seeing an article somewhere that said that this could work. However, it was dependent on everything being done correctly.

So I'd guess that you'd end up spending a lot on accountants and solicitors fees to get everything lined up to rebut any HMRC challenge - plus the rules on avoidance are constantly changing so something I read years ago might not even be possible now.

At a guess, it's going to be simpler to give some to one child each year (different child each time) rather than equal shares each year to all of them - and less obviously tax avoidance in this case. But that's a guess!

[someone]

I found this:
https://www.accountingweb.co.uk/any-answers/cgt-avoidance-0

I'd think it's this that is the key point that you could easily get wrong:

By ireallyshouldknowthisbut
23rd Jun 2021 09:54
There is a very important distinction between multiple gifts

And one gift made over multiple periods.

They key is to work out which it is, and the tax treatment will follow.

[Cloisters]

Thank you. Interesting. 

I think a single transfer would be quite effective in that with current CGT allowances of £24,600 between the two of us and effectively only applying to half the gifted amount amount i.e. the other half is CGT free as the property has roughly doubled since purchase, we can effectively gift around £50,000 value to the children. 

We can perhaps review in a number of years if appropriate to repeat the idea based on legislation at the time etc., at which time we need to be careful about the linking aspect, but if there is a good time period and no initial intent I would hope that passes the test. 

At least that would potentially save £20,000 of IHT which is a good start and doesn't diminish our own resources too early or by too much.

Any solicitors who are well versed in this an other IHT matters (ideally in the Bournemouth environs) please send a private message with contact details if you wish.

Thanks again.

[AGoodman]

The £40,000 threshold applies for the 2nd home additional charge but you will also need to consider whether the children will lose their first time buyer relief.

I've never had to look at the details but, at first sight, I don't see any reason why the relief would not be lost. There doesn't appear to be any de minimis threshold.

[Cloisters]

Good point, thank you.