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Sam
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Category: Tax
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My wife and I own our propety outright (primary residence).

Resolved Question:

My wife and I own our propety outright (primary residence). We wish to sign our son and daughter-in-law into joint ownership (Not their primary residence). When we die, the house is to revert to our son and daughter-in-law for them to either keep or dispose of.
What are the tax implications at both stages?
Submitted: 3 years ago.
Category: Tax
Expert:  Sam replied 3 years ago.
Hi

Thanks for your question,. My name is XXXXX XXXXX I am one of the UK tax experts here on Just Answer.

As this is your current home, then the transfer will not create any tax occasion, as your ownership of this property is fully covered by private residence relief.

However - we have to view both ant future disposal - either through sale, death and also the fact you will remain living there.

First the property can be treated as a potentially exempt gift (which means should you survive more than 7 years from the date of making the gift, that value is disregarded for Inheritance tax purposes) IF you start to pay half value market rent - as you plan to still make use of the half share you have gifted to your son and daughter in law.
By doing this you avoid the consideration of pre owned asset tax (and annual charge when you gift a property that you still have use of) and this then being treated as a gift with reservation which means that it is still included for Inheritance tax purposes.

However onto the main point of your question.

If your son and daughter in law inherit at your death - then depending on whether you have paid market value rent (on the half share you have gifted to them) then as long as 7 years have lapsed then just your remaining half share is added into your estate for consideration for inheritance tax. And as long the share of each of your total estate is less than £325,000 then there is no further tax consideration.

If market rent is not paid, then the whole value of the property is added into the estate - but you still each have a exemption of £325,000 each.

Then if your son and daughter in law, then go on to sell the property, much will be dependent on the time that lapses between the date they inherit and sell - but their half share (that you gifted) will automatically attract capital gains as this was never their main residence, but the half share from you - that they inherit - will only attract a again according to the increase in value - so the longer they keep it - the larger the profits/increase in value and so the more gain to consider

Thanks

Sam

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Customer: replied 3 years ago.

Hi Sam,


Do I understand rightly that the initial adding of son and D-in-L as joint owners has no immediate tax implications but, as we will be paying no rent, the full value of the house will attract Inheritence Tax, if the market value is over £325000 (currently) - that portion above this sum.?


 


Thanks,


Geoff W


 

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