CGT minimisation on family inherited property?

by Readers Question

8:46 AM, 19th April 2018
About 5 months ago

CGT minimisation on family inherited property?

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CGT minimisation on family inherited property?

After the death of our parents, my brother and I inherited a property which we have been renting for almost 30 years and considering selling for as many years. It is still registered to just my brother and I.

We both have families now with two kids each, the youngest soon to turn 16.

Our proposed plan: If the property was reregistered with the land registry in all eight names we could surely use eight times CGT allowances? This would then minimise the CGT liability and reduce it to a manageable amount, spread between 8 of us?

Lastly, we’re all basic rate tax payers.

First question – at what age is a CGT allowance given?
What have I overlooked?
Is there a better way to realise our gains?



Comments

Darren Peters

10:27 AM, 19th April 2018
About 5 months ago

Children can't own property until 18 though they can have shares in a company that owns property before that.

Also, there are a maximum of 4 legal owners allowed per title. You couldn't have 8 owners on the land registry documents. You could separate out legal and beneficial ownership Ie you and your brother are legal owners but the beneficial ownership is passed to the children via a Deed of Trust. More details of that route are above my pay grade.

If there was just one child so it was possible to add them to the title there would still potentially be CGT and SDLT on the transfer of the share in the property. I think you would first have to ensure that you and your brother owned the property as Tenants in Common rather than jointly. Ie you own a percentage of the property each. You could then sell a small share of the property to keep under SDLT threshold and possibly CGT threshold. Ie if the property is worth £400,000 you could sell/give 10% of the property valued at £40,000 and under the SDLT threshold. If the property has doubled since you bought it and the gain £200,000 then the gain on 10% is £20,000 - your £11,700 CGT allowance means you'd pay CGT at 18% on £8300 Ie £1494

The above is opinion, pointers, not advice. Speak to an expert.

silversurfer2017

13:49 PM, 19th April 2018
About 5 months ago

Slightly different question to a similar problem. My wife and I own quite an old property we bought in London about 25 years ago for £50,000 and it is now worth around £300,000. We would like ideally to dispose of it and sell it. We do not mind if our son and daughter-in-law get the proceeds. (It will help with IHT later on). We do want to avoid Capital Gains Tax. We already have the property registered as tenants in common. Could I give 5% of the property each year to our daughter-in-law and my wife give 5% of the property our son? (We realise the 7 year IHT rule on gifts would apply). Most of the gain would be covered by our annual £11,700 CGT exemption. Over 10 years we would have transferred 100% of the property with paying very little in CGT. What is wrong with this idea? Criticism and comments are most welcome.

Mark Alexander

14:15 PM, 19th April 2018
About 5 months ago

Reply to the comment left by at 19/04/2018 - 13:49

My reply is to the question raised by SilverSurfer

In theory, yes you could, but watch out for SDLT on linked transactions.

How would you structure the gifts? Declarations of Trust updated every year?

Where did 5% come from?

I've calculated that you each could gift 13.33% without running into SDLT issues based on the figures provided and that you could comfortably gift 9% of your 50% share in one year without triggering CGT on your share of £125,000 of capital gains by using your annual CGT exemption allowances.

Even after factoring in 3% SDLT on the first £125,000 of gifts though, that's a lot better than 18% or 28% CGT on your share of the capital gains.

silversurfer2017

16:24 PM, 19th April 2018
About 5 months ago

Thank you very much for your comments Mark - my 5% figure is wrong. Of course individually each of our gains is only £125,000 and not £250,000. So as you suggest a gift of around 9% each year based on my figures would be about right. Increasingly because of S24 we are now both 40% income tax payers and so would definitely be 28% CGT payers so even with 3% SDLT there would still be still be a good saving. The property is rented at the moment. Would all the owners have to go on the AST letting agreement as landlords or just myself and my wife as the active landlords until such point when the 100% transfer has been achieved and we no longer have any financial interest in the property? We thought of just making the gifts as outright gifts rather than under any trust set up? Presumably as our share of the property declines so then at least thoretically our share of the net rental profit goes down each year and should our tax returns should reflect this? Or could we keep and declare for tax all of the rental property each year until our stake in the property had fallen to zero?

Mark Alexander

16:27 PM, 19th April 2018
About 5 months ago

Reply to the comment left by at 19/04/2018 - 16:24
Section 24 will not affect you if you have no mortgages.

Mark Alexander

16:30 PM, 19th April 2018
About 5 months ago

Reply to the comment left by at 19/04/2018 - 16:24
In regards to your other questions, I think a family partnership or perhaps a mixed partnership structure might suit you better. It’s impossible to say for certain without a full consultation.

silversurfer2017

17:20 PM, 19th April 2018
About 5 months ago

We do have a BTL mortgage on another recently built property, and are endeavouring to pay off 10% each year, the maximum the mortgage allows without penalty. We have recently had a consultation on investment and IHT planning with St James's Place but property plays no part in their investment or tax planning strategies. Nearly all the advice is based on what they earn commission (rebates) on, mainly investment into a wide range of bond funds, under various types of trust umberellas. I doubt whether the advice is truly unbiased. So we will arrange a pay for a full consultation in due course after we have chatted with our son. We feel it would be useful to get advice from people who have property, legal and accountancy experience and qualifications who don't have to sell us anything to make a living.

Mark Alexander

17:32 PM, 19th April 2018
About 5 months ago

Reply to the comment left by at 19/04/2018 - 17:20
Noted, I look forward to receiving your booking

Paul Shears

23:32 PM, 19th April 2018
About 5 months ago

Reply to the comment left by at 19/04/2018 - 17:20
Please do a bit of internet research on St Jame's Place. It really will not take long but you may find it both shocking and briefly addictive reading. I also have another type of experience with these people that I would be prepared to share in private.

silversurfer2017

8:19 AM, 20th April 2018
About 5 months ago

Reply to the comment left by Paul Shears at 19/04/2018 - 23:32
Thanks for the warning. As a Which? member I have read their report plus comments on other websites. SJP full fees were not disclosed at the initial meeting or even in the follow up letter. In the last 3 years I have dealt briefly with not just one but two Chartered Financial Planners who were dishonest. I was also unfortunate in my very first lease extension to choose an ALEP valuer who was dishonest and/or negligent. I find it quite difficult to find good professionals who are honest and put the welfare of their clients first instead of their own self-interest.

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