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TonyTax
TonyTax, Tax Consultant
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I own some rental properties in Scotland. My son (18) is at

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I own some rental properties in Scotland. My son (18) is at university in England and doesn't currently utilise his Personal Allowance. I am just about to re-let one of the properties for c.£9k per annum and wonder if I could / should put the lease in his name, thus enabling him to utilise his Personal Allowance and me to reduce my own Tax Bill - I am a 40% tax payer. I realise that as and when he starts to earn money, he will need to declare the rental income, but that is unlikely to be the case for a couple of years anyway.
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

If you put the lease in your son's name, you are effectively gifting him the property at the open market value which may have Capital Gains tax implications for you if it is worth more than you paid for it. This is because you and your son are "connected" for CGT purposes.

In addition to the potential CGT implications, the gift will be a potentially exempt transfer for Inheritance Tax purposes. Should you die within seven years of making the gift, its value will be included in your estate for Inheritance Tax purposes.

Take a look at the notes here for more information on gifts, CGT and IHT.

I hope this clarifies your situation but let me know if you have any further questions.
Customer: replied 3 years ago.

 


Tony - the property is worth roughly what I paid for it, therefore I don't think CGT should be any issue. I also note your IHT point. In reality, I am gifting him (informally) use of the property, which in turn, will be rented to generate an income to cover his university costs. However, I envisage this informal arrangement ending once he finishes university and gets a job. I am merely trying to minimise (legally) my own tax bill, whilst funding my son's university education. Colin


 

Expert:  TonyTax replied 3 years ago.
HMRC won't accept what you refer to as "an informal arrangement" I'm afraid. If you get involved in a circular scheme whereby you "give the property away but not really" so to speak, with the intention of taking it back in the future, they will not be impressed if that was always your intention and that you did it to save tax on rental income.

If your son gave you back the share of the property you gave him sometime in the future of his own accord, there may be CGT and IHT implications for him.

If the property was jointly owned, you could share the rental income in whatever proportions you wish which will help you save some tax and give your son some income. There would be no CGT issue as you are not sitting on a gain and IHT would cease to be a problem after seven years. The property would not need to be owned on a 50:50 basis. Take a look under the heading "Jointly owned property - no partnership" here.

If there is a mortgage secured on the property, there may be stamp duty implications if the amount of mortgage that your son becomes responsible for is more than £125,000. That would depend on the amount of his share of the property. You would probably need to clear the arrangement with your lender.
Customer: replied 3 years ago.

 


Tony - thanks, XXXXX XXXXX helpful / interesting; final question, would I need to formally transfer a share in the property to him or would a family discussion around him owning (say) 10% of the property suffice ?

Expert:  TonyTax replied 3 years ago.
You would need to have a solicitor draw up a deed of some sort to reflect the percentage share you are transferring to your son. You might also have something formal drawn up to divide the rental income as you wish. My understanding of the law is that the size of the share really doesn't matter unless the joint owners are married or in a civil partnership.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15886
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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