to gift a property to my DC?

[AdviceNeededThanks]

Hi all - some guidance needed, please, and I hope it helps others as I have the feeling this is becoming a more regular thing to do by us baby boomers to help our millennials.

We have a small studio-flat that is impossible to sell and needs some renovation work. We've been renting it out for a few years and I'm now ready to stop all that sort of thing and lead a less stressy life (jinxed myself, again, I'll bet).

I'd like to gift it to my DD so that she can take over renting it and later do it up at her expense etc.

I've been trying to find out from HMRC websites, and also a long (wasted) phone call to them, about the taxation due on such a gift.

I've had a surveyor give it a valuation and on that basis, if we had sold it, we would be due to pay about £10,000 in Capital Gains Tax (assuming it could sell - when it actually didn't over several months).

However, after reading another thread, here, I got the impression that if you gift a property to a close family member, you don't have to pay CGT, but it does, however, stay in your estate for inheritance tax purposes (the seven year rule). That would be fine if that were the case.

I was expecting to pay CGT, but obviously if I didn't have to and the property instead stayed in my estate for up to 7 years, then that would be preferable. I wouldn't have to pay up front.

Does anyone have an idea on this situation? Can you gift a property that is not your main home and not pay CGT, but leave it as part of your estate for inheritance tax instead if due at the time of death?

Thanks all. x

[BTW - sorry, username changed. ]

I think you do have to pay CGT even if to a family member.

However are you sure the tax is actually £10,000 or the gain is £10,000.

If it is the gain you have a capital allowance of £11,500 this year so no tax would be payable.

If tax is payable on the amount of gain over the allowance then you pay at 18% or 28% depending what rate you pay for your income tax.

To calculate the gain

Take market value
deduct
purchase price
legal fees etc to purchase
cost of any improvements (ie. not replacements)

This gives you the gain, then deduct the allowance. If you jointly own the property then the gain is your share of the gain so in effect 2 lots of allowance.

Its just that £10,000 worth of tax seems quite high for a studio flat

I am fairly sure that if you gift the property to your DD then it becomes part of her estate. If you were to die within 7 years then she would have to pay inheritance tax on the value but wouldn't pay anything after the 7 years.
My DPs have done this. Myself and siblings have been gifted property. This was over 10 years ago now and so wouldn't be used for inheritance calculations.
Things may have changed but I believe this was correct.

Hi ReservoirDogs - the £10,000 is the actual CGT on the profit that DH and I would have to pay after deducting costs and annual exemptions.

So, I'm clear on that - but, not sure if instead the value of the studio can stay as part of our estate and then later be valued for inheritance tax accordingly.

Gifting a property to anyone other than a spouse is a disposal for the purpose of capital gains tax. It is not a potentially exempt transfer. Speak to an accountant.

I cross posted. No you will need to pay the CGT.

How my friend got round this when she was given a property by her Dad was that she herself paid the CGT as she was getting a £300,000 property out of it so still did rather well for herself by paying £30k tax.

She got a small mortgage over the property to fund the tax liability.

If you are unable to afford the tax bill perhaps your daughter would be prepared to do the same.

I think the recepiant would have to pay stamp duty too. Just to bear in mind.

I have no expertise on the subject but am depending on the '7 year rule' for a £4m property gifted to me and DH by my parents. The gave it to us 9 years ago and are both relatively healthy in their 80s.

Knowing my folks they did their due diligence.

I'm interested in a proper answer here.

Thanks, laughsandgiggles - I believe the rules have become stricter about gifting recently. I know you can gift a family, main home, and not pay CGT because it's not an asset that would normally attract CGT. It does however stay in the estate for 7 years, fair enough.

This studio would have attracted CGT if we had managed to sell it. About £10,000 worth if the surveyor's valuation had any market appeal.

Sweettutu, I think stamp duty would only be liable if there was a mortgage on the property, which there isn't.

My friends parents did this, and it has caused her so many issues it is just not worth it.

She couldn't buy her own lace for years, because it doesn't count as a first roperty

When she did buy her own place, she had to pay an extra £30 000 for it, I'm not sure why, but it was linked to already owning a flat.

She had to borrow the extra money separately. it couldn't be added to the mortgage.

She has to pay insurance and council tax, and all sorts of things.

her parents gift is something she would have been much better of without

If it's not your main home, you have to pay CGT on disposal (even if you give it away rather than selling it). And because the taxman doesn't like you disposing of your assets shortly before death to avoid inheritance tax, there is a "seven year rule" whereby it remains part of your estate if you die within 7 years - so it is quite possible for it to incur both inheritance tax and capital gains tax, unfair though this seems. Talk to an accountant.

Something else to look at is a beneficial trust with your DD as a beneficiary (along with perhaps her future children) - I don't know whether this would mean DD could still qualify as a "first time buyer" if she wanted to buy her own place. You really need to speak to an accountant!

Clairetrees the extra £30k would have probably been because she would have to pay the extra stamp duty as if it were her second property. This is charged at a higher rate than stamp duty on your first/residential property.

The bloody system.

it is quite possible for it to incur both inheritance tax and capital gains tax

I agree it's the sort of stealth double taxation that HMRC would love to get away with. But, I haven't seen anything on their websites that says they would do this. After all, if I had sold the property to a stranger, and then paid my CGT to HMRC, they are not going to go after the stranger to pay inheritance tax, are they?

Tax accountant here. Will be general in what I say and make sure you do your own due diligence as well.

If you are giving away an asset to anyone but a spouse, it is a disposal potentially liable to CGT. I am guessing you may have factored any potential reliefs for PPR/LR when calculating your tax liability. Proceeds are calculated at market value.

So this 10k will be due. You cannot defer it unless you use investments in things such as EIS/SEIS.

The gift will be at market value. This will be considered a Potentially Exempt Transfer (PET) for IHT purposes. If you survive seven years, it will be free from IHT. After three years, you get taper relief. If you die within seven years, IHT may be due.

Your Nil-Rate Band will be used against any PETs made in the seven years before death first on a chronological order. If your NRB doesn't cover the amount, it will be subject to IHT @ 40%. The recipient will have to pay this IHT, it doesn't come from the Estate.

A double charge is one of the risks of gifting assets.

You must also consider the fact your children will lose their first time buyer reliefs and will incur the stamp duty surcharge if they do not sell this property before they buy their own residence. If it as hard to sell as you say, you may be putting them in a tough spot.

After all, if I had sold the property to a stranger, and then paid my CGT to HMRC, they are not going to go after the stranger to pay inheritance tax, are they? If you had sold the property, then the money from the sale would be in your estate and subject to IHT.

In other words - Option 1: sell property for, say, £100,000. Your estate remains the same, except that £100,000 worth of property has been replaced by £100,000 cash, potentially incurring £40,000 IHT

Option 2: decide to reduce your estate just before you die by giving away your property, worth £100,000 (thus potentially avoiding £40,000 IHT) - tough, it won't work because of the 7-year rule . It's still regarded as part of your estate, and you (your heirs) still have to pay the IHT on it even though you don't actually own it (and maybe they don't own it either because you gave it away to someone else entirely).

Here's a pretty good article on capital gains tax.

Agree with Alarae, as we had something similar in our family recently. CGT and then make sure you live for 7 years (although inheritance tax does taper down every year on the anniversary of the gift)

Alarae and the others, thank you so much for taking the time to clarify a number of points.

I know the studio proved impossible to sell, but I think that's due to the present market conditions. I hope it won't always be like that and hence hoping DD will not see it as a millstone.

It looks like I will be paying the £10,000 or so CGT (could be more if HMRC don't agree its present market value). But, at least this asset could benefit my DD who is unlikely to be in a position to buy herself another home. So no worries about reliefs for first time buyers or stamp duties on second homes - and, also, these may well change over time, anyway, as they tend to be fairly fluid depending on government' whims.

Maybe there will also be inheritance tax to pay (although our so-called estate probably won't attract much, if any). However, this is where pot-luck comes in and all being well, at least DH should survive another 7 years - and, perhaps to make sure one survives, we shall avoid travelling together as much as possible!

Lots of useful advice has been posted, and I'll reread all the posts again as this sort of stuff takes a while to sink in and then for me to make the connections to my actual situation.

Thanks everyone, so far. x

Know nothing relevant about the tax but have had a crazy idea - could she move in and after xxxx years claim some sort of right? Squatters rights? I dunno saw a thread about someone trying to claim an empty house!
As you were back to proper suggestions!

Can you not add her on to the mortgage on the flat rather than gifting it to her? The version where you both own the whole thing not 50/50 so if you die the whole thing becomes hers without CGT? Just a thought.

You re potentially gifting a white elephant. She will no longer be a 1st time buyer, probably unable to sell it like you have been and unable to benefit from any 1st time buyer incentives.

A studio flat will have service charges etc.

Sounds a bit like you are dumping the liability rather than giving a gift. Just let her live in it if she wants to.

Sell it- it will sell if the price is right and give her the money for a deposit now or in the future.

It also needs to be mortgage free or she will be eligible for stamp duty.

Look into a trust, speak to your accountant.

Thank you, but it is far too small a transaction to warrant setting up trusts. Someone takes money to set it up and maintain.

I'm sure if I was wealthy, they'd be a way to avoid CGT, but I'm in the middling catchment bracket of having something that's taxable but not having enough to spend to set up a company or a trust or go offshore.

So long as HMRC spend my £10,000 wisely, I'll be content.

Another daft idea with a health warning. Could your DD buy it from you? Perhaps at a peppercorn value but use a FTB mortgage that is portable? So you sell cheaply, therefore no CGT? Your daughter buys cheaply and still benefits from preferable FTB rates which she could port over to another property later perhaps?

Can you flip your main address? Is that a thing?