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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4425
Experience:  FCCA FCMA CGMA ACIS
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Currently my wife owns a house (outright) in Potters Bar which

Customer Question

Currently my wife owns a house (outright) in Potters Bar which we wish to transfer to our Older son Jonathan, to avoid IHT liability. This was to be done a s one off and as a potentially exempt transfer.
The house was bought for £250,000 and with other costs and stamp duty had a cost to my wife of circa £255,000. It has just been valued for the transfer at £340,000. Indicating a profit of circa £85,000. As is, this, and with my wife’s tax position WRT allowances (she will just about use her £10,000 personal allowance on income) and given the £31,865 20% tax threshold would generate a CGT liability after the CGT free band of £11,000 (Taxable profit = £75,000) of about £22,000 at 18% and the balance £53,000 at 28%. Giving a total tax bill of £3,960 + £14840 i.e. £18,800.
A close friend of ours who is a corporate accountant who has had fun with HMRC in the past suggested a completely different approach but we are not sure if it flies.
Instead of transferring the house to Jonathan my wife sells it to him a bit at a time in 4 lots each of £85,000. Just before he buys each year we gift him £85,000 as a PET. My wife’s CGT liability on the £85,000 she receives is 85,000-(255,000/4) i.e. £21,250 minus her allowance of £11,000 means CGT at 18% on £10,250 or = £1845. Ignoring the impact of my questions below this gives a total CGT cost over 4 years of £7,380 giving a saving of £11,420 compared to today’s position but requiring my wife to live for 11 years to ensure all the PET’s are actually exempt.
Questions.
1. Do HMRC have some hidden rule that stops this.
2. Does the partial sale in each of 4 years bring Stamp duty into the picture and if so how and with what impact.
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.
My immediate reaction is to ask if this house is the sole or main domestic residence. Upon receipt of this information I can proceed, hopefully, to assist you.
Customer: replied 3 years ago.

This House was bought to ultimately give to our son becuse of IHT. We were abroad and stupid and did not buy it in his name as we should have done. He has lived in it rent free for several years whilst studying to be a Vet. which he became 3 years ago. It is his prime (only) residence but neither my wife or I have ever lived in it except for odd days.

The solution our accountant friend sugests is novel but CGT case law and /or legal challenges HMRC have made may already preclude it.

We are trying to establish if it is already blocked and then what the implications for Stamp duty might be. (At present a simple transfer has no Stamp duty because the house is owned by my wife outright with no mortgage.

Expert:  bigduckontax replied 3 years ago.
Well, the first news which you will not like is, of which I suspect you are already aware, is that for CGT purposes payment in stages is irrelevant and the disposal is deemed to have taken place on the first payment and is calculated on the aggregate price. Furthermore, as you did not occupy the house before you let it, albeit at a peppercorn rental, Lettongs Relief, which can be up to 40K instead of Annual exempt Allowance (AEA) of 11K is not available to you. It is a great pity you did not seek out professional advice before you proceeded as you did; it has proved highly expensive for you.
On Stamp Duty Land Tax the situation is rather better. Here is HMRC advice:
'SDLT does not usually apply if the property is given and received purely as a gift and there is no chargeable consideration.'
I am so sorry to have to rain on your parade.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 3 years ago.
Thank you for your support.
Customer: replied 3 years ago.

If we occupied it now, how long do we need it as our prime residence to obtain lettings relief?

Does this have implications for the status of our main property once we returned to it? It would be unrented while we lived at the Potters bar house.

Regards ***** *****

Expert:  bigduckontax replied 3 years ago.
You have to be in residence before letting to open the door to Lettings Relief. The general consensus of experts on Just Answer is that such an occupation should be for at least six months.
Theoretically it would insert a gap of six months in the CGT position of your main house in the event of sale, but the computation would be 6/[no of months total ownership] as a factor to apply to the gain made which you appreciate would reduce as the ownership period extends. In any event you have your 11K of AEA which will almost certainly eliminate any tax implications.