Land purchase

[mrrams]

An elderly family member would like to sell me some land (part of the land on which her own home is built), she doesnt want the money and wants me to pay it directly to my brothers and cousins. As soon as i own the land i will be applying for planning permission to build a house on (using funds from selling my current house)

What would the tax position on this be for everyone? As I imagine it.....

1) I am either gifted the house or pay a nominal fee for it. As it's part of my grandmothers house / (large garden!) she would not be liable for any CGT at "market rates" ?

2) As it will become my only residence within 12months i will be excepmt from any tax liability (apart from any gain over the 12 months)?

3) As i pay / give the money to my cousins / sisters they will be liable to pay tax on it at their rate ?


Is this scenarion correct or am i being hopelessly optimistic !!? If I'm totally wrong I'd appreciate some good advice.

Thanks.
mrrams

[Lee Young]

1) Depends strictly on the size of the overall land area, including the bit the existing house sits on, but most likely this is the case. CGT could be payable if the land area is more than half a hectare.

2) Again subject to the size of the plot you are given, this is most likely to be the case.

3) the capital receipt will be free of tax, but any income generated by it will of course be taxable on them at their rates.

The elderly family member is making a gift for inheritance tax purposes and therefore will need to survive 7 years to ensure the gift has no bearing on any tax liability on death.

[mrrams]

Actually the total size of her land would be more than half a hectare. The plot she would gift / sell me is less than half a hectare.

If the land is effectively gifted to me in the event of her death within 7 years would the money they i have paid to my sisters / cousins help to offset any inheritance tax that would be due ? If not would i be better to purchase the land from my grandmother albeit at probably 30% of the market value as in the future my inheritance tax liability would be lower?

[Peter D]

What Open market value has been placed on the piece of land. Regards Peter

[mrrams]

We haven't had it properly valued but I would think 200k would be pretty close. I'm being asked to give 80k to my sisters and cousins at 20k each.

[Peter D]

The open market value of the land will be deemed to have been gifted to you and a formal document will be required to show that you paid out £80K as a condition of the sale. I would suggest you would be better off actually paying the 80K to the relative and they gift the 20K sums. Now as the land is a gift it's OMV - 80K will remain in thesate for any future IHT calcualtions for a period of 3 full years after which the tax they may be due will attract 20% per year for the following 5 years falling to zero in 7 years. There are no tax implications with the 20K gifts. If there is an IHT issue it will be paid from the estate. The relative may be thinking that getting you to give the gifts moves the value out of the estate at the point of sale. This is not the case. Also the OMV will attract SDLT not the 80K tag you are paying. Regards Peter

[CDavey9501@aol.com]

Peter,

You confused the hell out of me:)

I wouldn't have thought SDLT would apply unless there was a debt attached to the land bing acquired?