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Where Taxpayers and Advisers Meet
tax on a house with tennants in common
-
Nigel Lord
- Posts:518
- Joined:Wed Aug 06, 2008 2:18 pm
PAP
The answer to your query depends on whether or not you and your brother reside in the house.
RESIDING IN HOUSE
If you and your brother lived in the property, and you father continued to pay his share of its maintenance, the gift would be treated as a Potentially Exempt Transfer (PET). The value transferred would entirely leave your father's estate after 7 years for IHT purposes. If he died within 7 years a proportion of the value could be exempt in line with the following table:
0 - 3 years = 0%
3 - 4 years = 20%
4 - 5 years = 40%
5 - 6 years = 60%
6 - 7 years = 80%
7 years + = 100%
The strategy of gifting part of a house to resident children is quite contentions and advice should be taken to ensure that it is IHT proof.
NOT RESIDING IN HOUSE
If you do not reside in the property, your father will be deemed to have made a Gift with reservation Of Benefit (GROB) as he will have retained a the benefit of living in the whole property. This would make any transfer ineffective for IHT purposes and therefore the full value of the property would remain in his estate at death. This could be overcome by charging your father a commercial rent on which you and you brother would pay income tax (not tax effective).
Your father would be deemed to transfer the proerty to you at open market value as you are connected persons. No CGT would arise if it has always been his main residence due to 100% PPR Relief. The shares of you and your brother would not qualify for PPR relief and therefore any gain from the date of transfer would be wholly chargeable to CGT. This could be avoided by using a trust arrangement. Advice should be taken.
You will realise that making the gift without living there or using a trust would be a disaster from a tax perspective.
There are a number of IHT planning strategies that should mitigate your family's IHT exposure, but they are often complex.
If you require any further assistance please do not hesitate to contact us, and we will be happy to act on your behalf.
Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852
The answer to your query depends on whether or not you and your brother reside in the house.
RESIDING IN HOUSE
If you and your brother lived in the property, and you father continued to pay his share of its maintenance, the gift would be treated as a Potentially Exempt Transfer (PET). The value transferred would entirely leave your father's estate after 7 years for IHT purposes. If he died within 7 years a proportion of the value could be exempt in line with the following table:
0 - 3 years = 0%
3 - 4 years = 20%
4 - 5 years = 40%
5 - 6 years = 60%
6 - 7 years = 80%
7 years + = 100%
The strategy of gifting part of a house to resident children is quite contentions and advice should be taken to ensure that it is IHT proof.
NOT RESIDING IN HOUSE
If you do not reside in the property, your father will be deemed to have made a Gift with reservation Of Benefit (GROB) as he will have retained a the benefit of living in the whole property. This would make any transfer ineffective for IHT purposes and therefore the full value of the property would remain in his estate at death. This could be overcome by charging your father a commercial rent on which you and you brother would pay income tax (not tax effective).
Your father would be deemed to transfer the proerty to you at open market value as you are connected persons. No CGT would arise if it has always been his main residence due to 100% PPR Relief. The shares of you and your brother would not qualify for PPR relief and therefore any gain from the date of transfer would be wholly chargeable to CGT. This could be avoided by using a trust arrangement. Advice should be taken.
You will realise that making the gift without living there or using a trust would be a disaster from a tax perspective.
There are a number of IHT planning strategies that should mitigate your family's IHT exposure, but they are often complex.
If you require any further assistance please do not hesitate to contact us, and we will be happy to act on your behalf.
Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852
Return to “Inheritance Tax, IHT, Trusts & Estates, Capital Taxes”