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We are thinking of gifting our main residence (mortgage free) to our children (aged 18 & 19) after we have brought a new house to live in. Wondering if anyone has any experience of these queries:
1. I am presuming there will be no CGT or stamp duty to pay and no IHT after 7 years
2. The children can use their personal allowances and use the rent for university fees
3. If they ever sell the property, will they pay CGT from the value at gift date?
4. Presumably they will get some allowances if they move there before selling it on?
5. Can we put the property into a limited company and gift to them?
Many moons ago my parents did this for me due to the property value at the time I seam to remember that I had to pay stamp duty.
Have you taken any professional advice on the transaction.
It was a great move at the time when the downsized using their own funds. 7 years has passed so a whopping great chunk has left their estate.
To answer each of your questions in turn:
1. There won't be a CGT charge as you can claim Main Residence Relief. There will be SDLT and if your children already own property (unlikely at 18 and 19 but not impossible) then they could incur the additional 3% surcharge. As for IHT it is a PET (Potentially Exempt Transfer) and as you mention you then need to survive 7 years.
2. Your children will be able to use their personal allowance against any rental income assuming they do not have any other earnings. They will then be able to use any net income (after tax) for whatever they wish.
3. Yes they will be liable to CGT and their base cost will be the value at the date of transfer.
4. If the children move into the property prior to sale then they may get some allowance but it will all depend upon whether they can show that they intended to live in the property as their main residence and that it was not simply a stop gap before moving into the house they intended to live in as their main residence. This si a very subjective test and will all depend upon the facts at the time.
5. If you put the property into a Limited company and then gift it to them the limited company would still be subject to SDLT which would be charged at the additional 3% rate and if the property is valued at more than £500,000 would be at the SDLT rate of 15%. If the value is greater than £500k then there is also ATED (Annual Tax on Enveloped Dwellings) to consider which although not payable on BTL property still requires quarterly reporting. Lastly if the property was held in a limited company and the children decided to live in it they would be subject to tax on Benefit in Kind based on the value of the property and again if valued over £500k would then incur a charge under ATED. There may be other issues related to getting the money out of the company for which more information would be necessary.
I hope that the above helps.
If your adult kids move in to the property as their main residence - then on sale there is no CGT as PPR is exempt.
As long as surviving spouses lives full 7 yrs post gift - the former PPR is not liable for IHT
The rent comment s confusing though - will this not be kids PPR???
Thank you all, especially your detailed answers Nigel, most helpful. A few further queries were:
1. Will the stamp duty payable depend upon value or mortgage amount?
2. If we put this and other btl properties into a limited company, would these pass on IHT free via business property relief?
3. Once 7 years have passed, can we gift another property up to the nil rate band, IHT free, if another 7 years pass by?
4. We have the option of gifting another btl property instead of our main residence, however, i assume CGT will apply unless we can put into a limited company?
The answer to your questions are:
1. SDLT will be calculated on the open market value.
2. Business Property Relief is not available for BTL properties. Accordingly it will be subject to IHT.
3. Since the gift is a PET for IHT purposes the Nil rate band is not relevant. You can gift any value you want with a PET.
4. Yes if you gift a property other than your main residence then yes CGT will apply.
Its also worth thinking about what you expect your children to do with the property once its in their name. Transferring a property means just that. You can't then get annoyed if they sell it to buy a fast car or travel the world!
There is no Stamp Duty on this as a gift of a mortgage free property.
Director of Tax Peplows Limited
CTA ACA FCCA