gifting your house to your children
Discussion
Hypothetically you own a house outright say valued at £1.2 million , You want to buy a second home to become your main residence but want to reduce stamp duty costs
on the second property if the value is above £ 1.5 million your going to pay 17% but if you sell it or gift it this reduces to 12% . Am i correct if your Children are under 18 you can put the property in a trust until they are 18 and therefore the purchase on the house your buying will be reduced to the lower rate of 12% i
then of course you have to live for 7 years to overcome IHT
is this correct
Generally speaking any change of ownership of a property will attract SDLT, so you would have to pay that on the market value of the property£1.2M home at the point you moved it into a trust.
The 7 year thing you mentioned only affects Inherutance Tax liabilities if you die.
Basically, your strategy won’t work.
The only breaks you can get is if property was privately owned and being run as a business (eg rental properties) and you then want to put them into a private limited company then you can get incorporation relief. But the standard for demonstrating the properties were bought as a business (not for living in, not for investment) are quite high.
The 7 year thing you mentioned only affects Inherutance Tax liabilities if you die.
Basically, your strategy won’t work.
The only breaks you can get is if property was privately owned and being run as a business (eg rental properties) and you then want to put them into a private limited company then you can get incorporation relief. But the standard for demonstrating the properties were bought as a business (not for living in, not for investment) are quite high.
PhilboSE said:
Generally speaking any change of ownership of a property will attract SDLT, so you would have to pay that on the market value of the property£1.2M home at the point you moved it into a trust.
I just read on Gov.uk"If you’re given property as a gift
If you get property as a gift you’ll not pay Stamp Duty Land Tax as long as there’s no outstanding mortgage on it.
You’ll pay Stamp Duty Land Tax if you take over some or all of an existing mortgage and the value of the mortgage is over the Stamp Duty Land Tax threshold."
I'm planning to give my partner my house, so I can then buy a new home without paying the absurd 2nd home premium. She will then rent out the gifted home, after a few years. That's the plan...
You can do this but there are real issue to overcome.
Firstly is it a real gift so you will have no connection with the property and will not live there at all and if you do will you pay rent at market rates. If the children are under 18 how can they afford to pay the bills ?
If it is a fake gift ( gift with reservation ) then the whole thing is pointless as it is not a gift and HMRC will see through it.
Next is the 7 year iht limit.
Sdlt does not apply on gifts.
Now your real problems start ....
If you put more than the iht nil rate band into a trust ( £325k ) you pay 20% iht on the surplus. If the house is owned jointly you can double that to £650k , but you are still paying 20% on the balance of £550k
Then you also get a 10 year tax charge.
The house is no longer a principal residence and the trust is liable for the cgt on sale at 24%.
So by all means do it but if your aim is to save a bit of sdlt then buy your second home in Spain and enjoy the sunshine. Their fees are ballpark 10%.
Edit. And be very wary of some people on Facebook etc who claim that if properly structured all of the above can be avoided. This is vanishingly unlikely and the one who pays the bill in x years time is you. The world if full of too good to be true tax schemes.
Firstly is it a real gift so you will have no connection with the property and will not live there at all and if you do will you pay rent at market rates. If the children are under 18 how can they afford to pay the bills ?
If it is a fake gift ( gift with reservation ) then the whole thing is pointless as it is not a gift and HMRC will see through it.
Next is the 7 year iht limit.
Sdlt does not apply on gifts.
Now your real problems start ....
If you put more than the iht nil rate band into a trust ( £325k ) you pay 20% iht on the surplus. If the house is owned jointly you can double that to £650k , but you are still paying 20% on the balance of £550k
Then you also get a 10 year tax charge.
The house is no longer a principal residence and the trust is liable for the cgt on sale at 24%.
So by all means do it but if your aim is to save a bit of sdlt then buy your second home in Spain and enjoy the sunshine. Their fees are ballpark 10%.
Edit. And be very wary of some people on Facebook etc who claim that if properly structured all of the above can be avoided. This is vanishingly unlikely and the one who pays the bill in x years time is you. The world if full of too good to be true tax schemes.
If you were to contemplate doing something like this you’d need proper advice which is provided on a reliance basis.
HMRC may well say right now that you can do something and what the tax implications will be but they are very capable of changing their mind in the future. At which point you need to be able to go back to the accountancy firm seeking redress. Winning fights with HMRC is not easy…and it’s expensive.
HMRC may well say right now that you can do something and what the tax implications will be but they are very capable of changing their mind in the future. At which point you need to be able to go back to the accountancy firm seeking redress. Winning fights with HMRC is not easy…and it’s expensive.
Jeremy-75qq8 said:
You can do this but there are real issue to overcome.
Firstly is it a real gift so you will have no connection with the property and will not live there at all and if you do will you pay rent at market rates. If the children are under 18 how can they afford to pay the bills ?
If it is a fake gift ( gift with reservation ) then the whole thing is pointless as it is not a gift and HMRC will see through it.
Next is the 7 year iht limit.
Sdlt does not apply on gifts.
Now your real problems start ....
If you put more than the iht nil rate band into a trust ( £325k ) you pay 20% iht on the surplus. If the house is owned jointly you can double that to £650k , but you are still paying 20% on the balance of £550k
Then you also get a 10 year tax charge.
The house is no longer a principal residence and the trust is liable for the cgt on sale at 24%.
So by all means do it but if your aim is to save a bit of sdlt then buy your second home in Spain and enjoy the sunshine. Their fees are ballpark 10%.
Edit. And be very wary of some people on Facebook etc who claim that if properly structured all of the above can be avoided. This is vanishingly unlikely and the one who pays the bill in x years time is you. The world if full of too good to be true tax schemes.
its an interesting one Main residence worth around £1.2 million no mortgage ideally like to gift it to our two children , ages 12 & 15 happy to put it in trust Firstly is it a real gift so you will have no connection with the property and will not live there at all and if you do will you pay rent at market rates. If the children are under 18 how can they afford to pay the bills ?
If it is a fake gift ( gift with reservation ) then the whole thing is pointless as it is not a gift and HMRC will see through it.
Next is the 7 year iht limit.
Sdlt does not apply on gifts.
Now your real problems start ....
If you put more than the iht nil rate band into a trust ( £325k ) you pay 20% iht on the surplus. If the house is owned jointly you can double that to £650k , but you are still paying 20% on the balance of £550k
Then you also get a 10 year tax charge.
The house is no longer a principal residence and the trust is liable for the cgt on sale at 24%.
So by all means do it but if your aim is to save a bit of sdlt then buy your second home in Spain and enjoy the sunshine. Their fees are ballpark 10%.
Edit. And be very wary of some people on Facebook etc who claim that if properly structured all of the above can be avoided. This is vanishingly unlikely and the one who pays the bill in x years time is you. The world if full of too good to be true tax schemes.
once this is set up we relinquish all rights to the property & a named settlor / Trustee manages the trust fund ( enough equity in the fund to pay council tax / bills maintain property until the Children youngest reaches 18 . When they then take ownership of the property jointly .
obviously everything will be dome legally notifying HMRC / land registry / setting up truist /solicitors fees etc.
as this is our sole residency use we have once its "gifted to the children" and we relinquish ownership there should be no capital gains tax to pay , There is no mortgage so no SDLT to pay and if I live more than 7 years no inheritance tax to pay.
regarding the 10 year rule , this shouldn't apply as the trust will only be effective for 6 years
according to Tax.gpv IHTM42816 - Special trusts: Age 18-to-25 trusts
Tax consequences
If the provisions are satisfied no charge to tax arises where
the beneficiary becomes absolutely entitled to any of the settled property on or before their 18th birthday,
Just looking at all possibilities its a bit of a minefield and it would depend how long it takes to set up the trust ,and what the financial gain would be as opposed to simply buying the second home at the 17% rate
Jeremy-75qq8 said:
But what are you going to do with the house ? You can't use it unless you pay rent or it is not a gift.
There is no cgt and there is no sdlt
18-25 trusts are only created on death and I assume given you are writing this post you are very much alive
Im a bit confused ? why would not renting the property ,not make it a gift ? There is no cgt and there is no sdlt
18-25 trusts are only created on death and I assume given you are writing this post you are very much alive
I don't want to rent it out.
I simply want to give it to the kids once the trust is signed I wont be involved it will be up to the trustees to act in the best interest of the beneficiaries............... That doesn't mean the property has to be rented out ?
It can stay locked for 6 years , or the trustee can live in it ? as long as its maintained . then when our son is 18 six years later he and his sister take ownership and the trust is completed
Please let me know if I have this right.
You want to buy a new house to live in - presumably you have enough cash / income to be able to do this without selling your current house.
Rather than sell your current house you wish to pass it on to your children, so that they jointly own it once the youngest is 18.
When buying your new house, you'd prefer to "only" pay stamp duty at the standard rate.
Assuming that I have the above correct, then it doesn't really sound that off the wall. It's no different really to selling your current house and then putting the sale proceeds into trust so that your kids get their hands on the cash at the same time. However, I suspect that as there's a house involved, things will be more complicated than they really should be.
You want to buy a new house to live in - presumably you have enough cash / income to be able to do this without selling your current house.
Rather than sell your current house you wish to pass it on to your children, so that they jointly own it once the youngest is 18.
When buying your new house, you'd prefer to "only" pay stamp duty at the standard rate.
Assuming that I have the above correct, then it doesn't really sound that off the wall. It's no different really to selling your current house and then putting the sale proceeds into trust so that your kids get their hands on the cash at the same time. However, I suspect that as there's a house involved, things will be more complicated than they really should be.
Purosangue said:
Im a bit confused ? why would not renting the property ,not make it a gift ?
I don't want to rent it out.
I simply want to give it to the kids once the trust is signed I wont be involved it will be up to the trustees to act in the best interest of the beneficiaries............... That doesn't mean the property has to be rented out ?
Its not about renting it out, its about the fact that as you no longer own it, if you where to continue living there you would then have to rent it, from its owners, your children.I don't want to rent it out.
I simply want to give it to the kids once the trust is signed I wont be involved it will be up to the trustees to act in the best interest of the beneficiaries............... That doesn't mean the property has to be rented out ?
NB I am not an expert in this field!
Purosangue said:
Im a bit confused ? why would not renting the property ,not make it a gift ?
I don't want to rent it out.
I simply want to give it to the kids once the trust is signed I wont be involved it will be up to the trustees to act in the best interest of the beneficiaries............... That doesn't mean the property has to be rented out ?
It can stay locked for 6 years , or the trustee can live in it ? as long as its maintained . then when our son is 18 six years later he and his sister take ownership and the trust is completed
What he is trying to say is that HMRC will deem you to be renting a property that you do not own, and at market rate, even if you don't actually pay any rent.I don't want to rent it out.
I simply want to give it to the kids once the trust is signed I wont be involved it will be up to the trustees to act in the best interest of the beneficiaries............... That doesn't mean the property has to be rented out ?
It can stay locked for 6 years , or the trustee can live in it ? as long as its maintained . then when our son is 18 six years later he and his sister take ownership and the trust is completed
This is then no doubt deemed as taxable income to the trust regardless of how much rent is actually received.
If you simply gift the property to your adult children they can of course sell it without your approval and spend their winnings on coke and hookers.
What you are trying to do is a tax fiddle that got dealt with eons ago.
Edited by GT9 on Tuesday 13th May 15:34
Purosangue said:
It can stay locked for 6 years , or the trustee can live in it ? as long as its maintained . then when our son is 18 six years later he and his sister take ownership and the trust is completed
What are you going to do if one child wants to keep it and one wants to sell it?18 is quite young.......what if they sell it and piss the lot up the wall?
Personally, I'd just rent the house out and then sell it when the trust matures for both of them. I'd also set the trust maturation at at least 21, if not 25 years old.
Purosangue said:
Im a bit confused ? why would not renting the property ,not make it a gift ?
I don't want to rent it out.
I simply want to give it to the kids once the trust is signed I wont be involved it will be up to the trustees to act in the best interest of the beneficiaries............... That doesn't mean the property has to be rented out ?
It can stay locked for 6 years , or the trustee can live in it ? as long as its maintained . then when our son is 18 six years later he and his sister take ownership and the trust is completed
Why would you / they not rent it out and make a nice little nest egg / income for the kids in the meantime. Locking up a house for 6 years is not a good idea. I don't want to rent it out.
I simply want to give it to the kids once the trust is signed I wont be involved it will be up to the trustees to act in the best interest of the beneficiaries............... That doesn't mean the property has to be rented out ?
It can stay locked for 6 years , or the trustee can live in it ? as long as its maintained . then when our son is 18 six years later he and his sister take ownership and the trust is completed
Haven't looked into this in detail but was considering something similar; gifting a rental property house to the kids, they split the rent and either use it to pay their mortgage(s) in 15 years time or sell the house to reduce their mortgages. In the meantime they can earn the deposit on a house by putting their income into an ISA or similar.
What I wasn't sure of was whether a) they can then apply their own tax-free allowances to their rental income and also whether I could charge the market rate for managing the properties if necessary? I would do it for free in reality, but interested in how that can work.
What I wasn't sure of was whether a) they can then apply their own tax-free allowances to their rental income and also whether I could charge the market rate for managing the properties if necessary? I would do it for free in reality, but interested in how that can work.
The rule is called gift with reservation.
If you give it away you give it away. End of.
If you use it , live in it , stay in it etc then either ( a) the whilst thing is in effect unwound as it is not a gift at all or ( b) you pay full market rent.
There is no in between.
The rules are complex and designed to make sure that you can't do what you are trying to do.
You need to go a get proper advise.
If you give it away you give it away. End of.
If you use it , live in it , stay in it etc then either ( a) the whilst thing is in effect unwound as it is not a gift at all or ( b) you pay full market rent.
There is no in between.
The rules are complex and designed to make sure that you can't do what you are trying to do.
You need to go a get proper advise.
The Rental Income Protection Plan allows for a rental property to be gifted under a Trust, with the person/s making the gift retaining the rental income and control over the property.
The property must be mortgage free, the owner does not envisage selling the property during their lifetime, and the owner would like to reduce their IHT. The latter of course subject to the owner surviving seven (7) years from the date of the gift/trust.
I have recently received legal tax advice from a top 500 legal practice, covering both rental and holiday home properties.
The property must be mortgage free, the owner does not envisage selling the property during their lifetime, and the owner would like to reduce their IHT. The latter of course subject to the owner surviving seven (7) years from the date of the gift/trust.
I have recently received legal tax advice from a top 500 legal practice, covering both rental and holiday home properties.
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