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Where Taxpayers and Advisers Meet

Bare trust with son.. Sale of share of property and write off of loan

hermit
Posts: 8
Joined: Wed Aug 06, 2008 3:02 pm

Postby hermit » Fri Mar 30, 2007 10:50 am

Five years ago, my son and I bought a property to let. I paid one-tenth, son paid the balance (with mortgage). Legal title in in son's name only. I have considered this is a bare trust and have paid IT on my one-tenth rent less expenses. I am now considering selling my tenth share to son. This will be a transfer between associates and the value will need to be agreed with HMRC for my CGT but I expect the value will be about £16000 -- and on this figure, the capital gain I have made will be covered by my annual CG exemption.
I intend to leave all of the proposed 16000 sale price on a loan (?interest free) of 16000 to my son to pay for my share,repayment by monthly instalments. This loan will of course be my asset and part of my estate for IHT.
If I then write off say 3000 of the 16000 am I right in thinking this will be a gift inter vivos and potentially chargeable to IHT unless I live 7 years ? Can I therefore claim this 3000 as within the annual gifts exemption for IHT -- no other gifts in the year. And then add a further 3000 from last years unused gift exemption -- ie 6000 in one stage or two separate movesin tax year 1. Or alternatively 3000 on 5 April yr 1, 3000 on 6 April in yr 2
I appreciate that proper documentation would be desirable

?Any other potential problems
Thanks for advice

maths
Posts: 8034
Joined: Wed Aug 06, 2008 3:25 pm

Postby maths » Fri Mar 30, 2007 12:28 pm

Yes, any write off of the loan will qualify for PET treatment becoming liable to IHT in the event of your death within 7 years thereof.

Amounts written off of up to £3,000 per tax year would be eligible for annual exemption treatment.

sharpener
Posts: 63
Joined: Wed Aug 06, 2008 3:34 pm

Postby sharpener » Fri Mar 30, 2007 3:31 pm

In similar circumstances I discovered that "if any loan has been waived by the lender, so that the estate of the lender is reduced for Inheritance tax purposes by the amount of the loan released, then the waiver must be effected by deed. See Pinnell(1602) 5 Co Rep 117a and Edwards v Walters (1896)2 Ch D 157, CA" (for the
full text click on http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm19110.htm)

HTH

Peter D
Posts: 10668
Joined: Wed Aug 06, 2008 3:37 pm

Postby Peter D » Sat Mar 31, 2007 4:26 am

You can use last years and this years gift allowance now so £6000 and £3000 after April 6th. Regards Peter

hermit
Posts: 8
Joined: Wed Aug 06, 2008 3:02 pm

Postby hermit » Sun Apr 01, 2007 2:39 am

Thanks to Peter D, sharpener and maths for replies which have been most helpful.
hermit


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