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Where Taxpayers and Advisers Meet

Split of gift and 7 year gift rule

dotto
Posts:58
Joined:Wed Aug 06, 2008 3:16 pm
Split of gift and 7 year gift rule

Postby dotto » Wed Jan 22, 2020 11:32 am

1 My two sons and I were involved in building a house which was completed in 2016. The house is in the name of Son A and has 2 promissory notes, one in Son B's name and one for the same amount in my name. I would like to gift mine at this point but am not sure how. If I gift 50/50 to 2 sons, then die within the 7 year rule period, Son A will presumably have to pay capital gains tax on any increase in the value of the new house pro rata to the gift, whereas Son B will not have to pay anything as his share will not have increased as it is a set sum of money. Am I correct in this assumption. I am thinking it would be better to gift to son B.

2 We all have a one third share in the "family" home and intend demolishing this and building a new dwelling with a granny annexe for me. At the moment each share of the property is worth, for example, £100,000 each. My sons will raise a substantial amount against the first new build outlined in question 1 in order to do the new replacement build. It is reasonable for me, I think (as I am not inputting any further finance), just to retain the £100,000 share in our current home and therefore have a share in the replacement property of one sixth of its value (for example if replacement is worth £600,000), or to take myself off the title deeds and just have a promissory note for £100,000. I hope to end my days in the granny annexe (although pretty fit at the moment) but need to make sure I am not creating problems for the future as regards tax implications and possible care fees.

I have tried to research all of this but am still confused on the best way forward. Any thoughts on this would be appreciated.

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Split of gift and 7 year gift rule

Postby pawncob » Wed Jan 22, 2020 11:57 am

No capital gains tax arises on the gift, since it's merely the cancellation of a debt a far as "A" is concerned and an outright gift to "B".
With a pinch of salt take what I say, but don't exceed your RDA

dotto
Posts:58
Joined:Wed Aug 06, 2008 3:16 pm

Re: Split of gift and 7 year gift rule

Postby dotto » Fri Jan 31, 2020 4:08 pm

Thank you for your reply. The two promissory notes held against the new property owned by Son A are :
1 £95,000 Son B
2 £95,000 myself (parent)

I have decided to hand over the amount of my promissory note to Son B so that he has a fairer share in the property. From your response, I understand this will be treated as a gift from me to Son B. I had expected that this would be tax free, should I survive 7 years from the date of transfer. Reading the proposed changes in the pipeline re tax on gifts etc, can anyone offer any advice on whether this is a bad move on my part. I have already contacted my solicitor who is in the process of retrieving the file. Son B is not brilliant with money which is why the property is in the name of Son A, but I am hoping to balance things out as time goes on.
If we go ahead and the new promissory note is recorded at Land Registry , does this automatically trigger with HMRC that a gift has been made at that date (currently to start off the 7 year rule). With the proposed new rule, what do you think if, say, a year has elapsed between the transfer and the new rule being implemented, the effect would be on the gift from a tax perspective.


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