Getting the property back out of my estate?

Getting the property back out of my estate?

9:56 AM, 27th June 2022, About 3 months ago 22

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In 2009 my son-in-law got into financial difficulty and I repaid all debts and the mortgage on their property and took ownership of their home allowing them to remain in the property rent-free. At the time I paid 209k for this property.

I now wish to get the property out of my estate and gift the property to my daughter. This is valued today at approximately 400k. I understand if I gift this property there is likely to be a CGT liability on the increase in the value of the property between the 2009 acquisition and today’s date namely a taxable profit of 191k.

I wondered if there is a legal way to eliminate or indeed considerably reduce the tax liability on this gift. We have explored the costs and implications of putting the property into a trust and also considered leaving it in our estate neither have worked out as a Realistic option and would end up costing more.

The gifting would be our favourite route but we would like to reduce the tax liability. We would welcome any suggestions.

Many thanks

David



Comments

david goddard

20:36 PM, 28th June 2022, About 3 months ago

Reply to the comment left by Grumpy Doug at 27/06/2022 - 10:58
Thank you Grumpy Dog transferring the property over a number of years could work and legally save tax.
David.

CMS View Profile

1:16 AM, 30th June 2022, About 3 months ago

I haven't thought this all the way through yet and you may want to speak to an accountant but the below might work (but as i have said i havent thought it all the way through yet). Before i mention that though i would question whether gifting the whole property to your daughter is the best idea because i think i am right in saying you will be hit with CGT and potentially IHT if you die within 7 years.

On the basis you cannot avoid everything i would think this gives you a good chance but as i say you need to speak to an accountant:

1. get the property into you and you wifes name if it is not already;
2. sell the property to your daughter for the value of the property less you and your wifes CGT allowance;
3. i dont expect your daughter to come up with the purchase price but instead you and your wife take a legal mortgage over the property for the sale price. This is then not a gift and not subject to CGT although your daughter will have had to pay SDLT;
4. I would wait a while (it will look like blatant tax avoidance and could be voided but this could happen anyway) maybe a year and then effectively pay the mortgage offer so you are no longer owed anything. This would be classed as a gift and potentially subject to IHT if you do not live for 7 years but as its a cash gift i am pretty sure that it will not be subject to CGT.

I am pretty sure that i have done this and it worked but it was some time ago so you should speak to an accountant but this at least gives you a fighting chance of no IHT and exchanges the SDLT liability for the CGT liability.

I hope this helps but feel free to contact me if you want to speak about this. Best, Charles

CMS View Profile

1:59 AM, 30th June 2022, About 3 months ago

Reply to the comment left by Tim Rogers at 28/06/2022 - 09:10
Hi Tim,

I don't know a great deal about the benefits system so cannot comment on any impact the transfers would have on that (although you could find the benefits go down if the council become aware that they have an interest in a property) but in answer to your questions generally my thoughts would be:

1.If you and you wife own the property and you intend to gift a part to the two tenants then it is still possible to have a tenancy from the 4 to 2 but the tenants would effectively be entitled to their share of the rental income so effectively they would pay the rent and get half back. Whether you deal with it in that way in practice i will leave to you but certainly i would expect the tenancy to relate to the whole as opposed referring to the tenants renting the share of the property they do not own;

2. The increases will have to be taken into account so for example if you wanted to gift £50k of the value each year if in year 1 the property was worth £100k you would transfer 50% but if in year 2 it was worth £200k you would gift 25%. I know that is blatantly obvious but thats how it works;

3. All i can really say regarding this is that you need to make sure you factor in any other gains (if any) before calculating what you can trasnefr each year CGT free because if you have used up part of your allowance through another gain it obvs has to be deducted.

Blodwyn

11:04 AM, 2nd July 2022, About 3 months ago

Reply to the comment left by Tim Rogers at 28/06/2022 - 09:10
You must get professional advice, in this case even from the CAB free?, will your kindness alter your tenants' financial profile to reduce or remove their income from benefits?

david goddard

9:58 AM, 3rd July 2022, About 3 months ago

Reply to the comment left by CMS at 30/06/2022 - 01:16
Thanks Charles I will discuss this with my accountants. Another potential route.

David

Whatwoulda Surveyorknow?

12:08 PM, 3rd July 2022, About 3 months ago

Reply to the comment left by david goddard at 28/06/2022 - 20:36David.
Your daughter has been living in the property rent free for 12 years. Could she claim a tenancy? And she could be difficult to evict? So could you not explore formalising this to grant her a life interest in the property? Query if this triggers any tax liability. You then leave your interest in the property to, for example, your grandchildren. Your CGT liability dies with you but the grandchildren will inherit a devalued property because of your daughter's life interest. The value could be below the IHT threshold as the remainder of your estate could go to your widow. May be another route to explore but
Whatwoudasurveyorknow? .

Grumpy Doug

21:21 PM, 3rd July 2022, About 3 months ago

Reply to the comment left by Whatwoulda Surveyorknow? at 03/07/2022 - 12:08
Now that's an interesting option! I still believe that if David has plenty years left in him and is married, a partial transfer per annum is the way to go. Simple, low cost and no issues with HMG. Should be completed in 8 -10 years

Charles Dowding

9:02 AM, 4th July 2022, About 3 months ago

Reply to the comment left by Grumpy Doug at 27/06/2022 - 10:58
If David transfers a part share in the beneficial interest by DoT, is a TR1 necessary?

Grumpy Doug

15:00 PM, 4th July 2022, About 3 months ago

Reply to the comment left by Charles Dowding at 04/07/2022 - 09:02
That's what we did in year 1. Just a DoT in consecutive years.

CMS View Profile

12:07 PM, 6th July 2022, About 3 months ago

Reply to the comment left by david goddard at 03/07/2022 - 09:58
No worries. If the accountant questions can you let me know what his issue is with it as i would be interested. Cheers, Charles

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