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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hi! I sold my house in August 2013 for £477,477 and bought

Customer Question

Hi!

I sold my house in August 2013 for £477,477 and bought a flat I live in for £310,000 and am in the process of buying a flat as an investment for £297,000 and let it out. The reason for doing this is that I had to take retirement on medical grounds and my pension is not enough to live on. I turned 60 on 24th October.
I would like to reduce the inheritance tax my two daughters will have to pay on my death without incurring a large CGT. I am thinking of putting either the flat I live in on all our names or doing that with the investment flat.
I would be grateful for your advice if either of these ideas would reduce IHT and/or CGT.
Thank you for your help.
Kind regards
Julia
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

If you add your daughters to the deeds of the flat you live in, you will effectively be gifting them a third each. If you do that, you will be making a disposal for Capital Gains Tax purposes at the open market value of part of your home but there should be no CGT to pay as the property is your principle private residence.

You would also be making a gift for Inheritance Tax purposes and under normal circumstances, so long as the donor (you) live for at least seven years after making a gift, its value will not be included in your estate for IHT purposes. However, should you continue to live in the property, the gift will be a gift with reservation of benefit for as long as you continue to live there and the IHT clock will not start ticking until you move out or start to pay a market rent. If you live in the house until your death, its value will remain in your estate for Inheritance Tax purposes.Take a look here for information on gifts with reservation of benefit and here for information on passing on your home.

The same CGT scenario would apply to the let property except for the fact that any "gain" you make will be subject to Capital Gains Tax. Given that you are in the process of buying it, adding your daughters' names to the deeds now will mean that there will be no gain. However, there will be gifts for Inheritance Tax purposes and you will need to live for at least seven years after making the gifts to ensure the value of the gifts was not included in your estate for Inheritance Tax purposes. You would be able to split the rental income in whatever proportions you liked for tax purposes.

You might consider taking out some term assurance to cover a potential Inheritance Tax liability. As taper relief (see here) can apply to gifts after three years, the level of the life cover could be reduced as time passed. It would terminate after seven years. The policy could be written in trust for your daughters to bypass your estate. There is some information on term assurance and IHT here and here.

I hope this helps but let me know if you have any further questions.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15846
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
TonyTax and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

Hi Tony tax


 


Thank you for your reply. Unfortunately I made a mistake about the sale price of my house. I sold it for £782,570.


 


Does that change anything in your advice?


 


Kind regards


 


Julia

Expert:  TonyTax replied 3 years ago.
Was the house you sold for £782,570 your main home for all the time that you owned it?
Customer: replied 3 years ago.

Yes, it was.

Expert:  TonyTax replied 3 years ago.

Thanks.

If you own a property which is your main home for the entire period of ownership and up to three years after you move out (18 months from 6 April 2014), then there will be no Capital Gains Tax to pay on any gain you may make. Take a look at the HMRC helpsheet HS283 here for more information on the main residence and CGT.

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