Gifting his own residential property to his son via his brother?

by Readers Question

9:24 AM, 31st July 2020
About 4 months ago

Gifting his own residential property to his son via his brother?

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Gifting his own residential property to his son via his brother?

A friend wants to gift his own residential property to his son and move into a property he has been renting out. The son, however, has some issues and is not willing to accept the gift of the property for the time being.

The friend is contemplating gifting the property to his brother, who would move in and reside in the property as his main residence and at a later stage gift it to his nephew when the latter is ready.

There are no family issues and the matter is straightforward and agreed between the brothers. Can anyone, however, see any financial aspects that may be a problem?

Since it is a residential property there should be no CGT liability when gifting to the brother. There is no mortgage on the property, hence no stamp duty arises.

Similarly, since the brother will be residing in the property no CGT or stamp duty should arise at the second transfer from brother to nephew.

Or is something being missed?

All comments welcome and greatly appreciated.

Frederick


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Comments

Charles de Lastic

11:22 AM, 31st July 2020
About 4 months ago

I am a specialist inheritance tax adviser.
I cannot see any issues unless the brother dies so would there be an IHT problem and has the will been adjusted accordingly. Also if he dies even though it would be the brother's main residence the Residential Nil Rate band would be lost as the house would not be going to his children but to his nephew.
Obviously the person making the gift has also made a potentially exempt transfer and so if he does not live 7 years there may also be an IHT issue as the gift would fall back into the estate.
It would be sensible to determine the IHT issues around this for all parties

Smartermind

12:39 PM, 31st July 2020
About 4 months ago

Stamp duty is currently suspended up to £500k, but generally stamp duty is payable on the purchase of the property and is not dependent on whether it is mortgaged or not. Also if it is the brother's second property, CGT and stamp duty would be payable.

The brother may be the best and kindest uncle in the world, but tomorrow "he may take a knock on the head" and sell the house and pocket the proceeds. This contingency, it happens, also has to be factored in.

Why not put the house in a trust for the benefit of the son? Just a thought.

Puzzler

12:54 PM, 31st July 2020
About 4 months ago

Stamp duty is payable on the amount of a mortgage as if it were a sale, because the mortgage debt is treated as consideration for the transfer. This applies when the recipient takes over responsibility for the mortgage.

Lindsay Keith

16:43 PM, 31st July 2020
About 4 months ago

Could one of the 'issues' confronting the proposed donee be impending debt or bankruptcy proceedings that would see the gift go to third parties and not the family?
The scenario we are being asked to comment on is incomplete?

Chris Bradley

7:41 AM, 1st August 2020
About 4 months ago

Surely if you gift a property to someone not a spouse then the transfer is assumed to be a transfer at market value even if no money changes hand and no morguage is in place. (so get a property valuation) Stamp duty may be payable depending on the house value and rules in place at the time. If the gift is made with reservation, ie the person giving is retaining an interest, in this case retaining the right of who gets the house later, that could put it outside a "Pet" for inheritance tax purposes. If it was accepted as a potentially exempt transfer then the person giving needs to survive 7"years to avoid IHT, the brother receiving would need to survive 7years from When he gifted it onwards. Also consideration should be given to how old the gifter is, as it could be seen as trying to avoid care fees in old age. In which case local authorities will take the value of the house, as still belonging to the gifter on their care fees assessment. Trusts may be the way to go, but trusts are taxed at the 10year point. I think you need expert advice before proceeding.

Puzzler

9:10 AM, 1st August 2020
About 4 months ago

Reply to the comment left by Chris Bradley at 01/08/2020 - 07:41
Assuming your first comment applies to CGT, I think the OP means that the house is the donor's PPR so no CGT due.

Frederick Morrow-Ahmed

11:20 AM, 2nd August 2020
About 4 months ago

Reply to the comment left by Charles de Lastic at 31/07/2020 - 11:22
Thank you for pointing out that the Residential Nil Rate Band (£175,000) would be lost. However, I assume the basic or Standard Nil Rate Band (£325,000) would still apply even with the nephew as beneficiary.

Frederick Morrow-Ahmed

11:49 AM, 2nd August 2020
About 4 months ago

Reply to the comment left by Smartermind at 31/07/2020 - 12:39
Thank you for that thought provoking comment but my understanding is that Stamp Duty is not payable on GIFTING (ie no monetary consideration) an unencumbered property. What I don't know is whether this applies only to gifting to an offspring or could also be applicable to gifting to anyone.

I believe CGT is not payable regardless of how many properties the brother has on receipt of the gift as long as PPR applies. I have been under the impression that CGT is determined solely on the status of the property being gifted and if that property has been used by the giftor/donor as his primary residential home then no CGT arises whether on sale or transfer by gift to anyone.

I thought the principle is that if no CGT arises on sale, because of PPR, then none arises on gifting.

Yes, after receipt of the gift, if the brother does not make that gifted property his primary residence, then there would be a CGT liability when he gifts it to his nephew, if the property has increased in value during that time. That is, between the time of the brother receiving the gift and then gifting it on to the nephew, ie between the two giftings.

A moot point is, whether HMRC would raise any objections to the house being gifted twice in this manner?

Frederick Morrow-Ahmed

11:56 AM, 2nd August 2020
About 4 months ago

Reply to the comment left by Lindsay Keith at 31/07/2020 - 16:43
Thank you for that pertinent question. From what I understand, and I am not privy to the whole background, the son’s ex-girlfriend appears to have alleged harassment etc and the son is fearful of being sued for damages. I am just wondering if the father should rather be advising his son to get legal advice on the matter and what sort of lawyer would have expertise on a case like this. Needless to say, my friend, the father, is quite exasperated by the behaviour of his son. One of the hazards of being a parent these days.

Frederick Morrow-Ahmed

12:14 PM, 2nd August 2020
About 4 months ago

Reply to the comment left by Puzzler at 01/08/2020 - 09:10
Thank you. Correct.

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