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Where Taxpayers and Advisers Meet

Tax on inherited property

Scraff
Posts:1
Joined:Tue Feb 27, 2024 4:17 pm
Tax on inherited property

Postby Scraff » Tue Feb 27, 2024 4:19 pm

My dad inherited a house from his brother about 30 years ago. He has been letting it out for some of this time. He wants to gift it to me as I have been divorced and without a home. Any way to avoid having to pay CGT????

Jholm
Posts:389
Joined:Mon Mar 11, 2019 4:22 pm

Re: Tax on inherited property

Postby Jholm » Wed Feb 28, 2024 10:38 am

Possible idea but not a specialist in this area - someone will confirm or deny I am sure!

He could look at settling the property into a trust. This would technically be a chargeable transfer for IHT and also CGT. Assume the property value falls below his nil rate band (likely £325,000), then no IHT due on transfer. However, because this is nevertheless a chargeable transfer to IHT, s260 applies, meaning the gain for CGT purpose can be rolled into the property base cost (ie. reducing the allowable base cost against future sale). This route could mean no taxes payable (subject to value). Would need to consider this reduces his available NRB at death - 7 years survivorship window applies.

Can anyone confirm or shred this idea?

AGoodman
Posts:1936
Joined:Fri May 16, 2014 3:47 pm

Re: Tax on inherited property

Postby AGoodman » Thu Feb 29, 2024 9:57 am

Can confirm.

It's a case of balancing the CGT saving vs the administration cost of operating a trust. That might be quite low if you are going to be living in it rather than letting it out (potentially requiring tax returns etc). You would also want to check in with an adviser once in a while to check you are fully compliant and nothing should be changed.

The value will have to be less than £325k to avoid IHT on the transfer and you may need to file an IHT return on each 10 year anniversary - with the possibility of a (relatively) small amount of tax (@6% on the value over £325k at the time).

Provided it wasn't pre-planned (which is a bit of a grey area) the trustees could distribute the property to you or your children at a later date and (as the law stands) claim holdover relief again on the way out.

bd6759
Posts:4415
Joined:Sat Feb 01, 2014 3:26 pm

Re: Tax on inherited property

Postby bd6759 » Fri Mar 01, 2024 11:28 pm

Easier to let you live in it rent free and leave it to you in his will.


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