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Sam
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Category: Tax
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Just over 7 years ago, I purchased a flat in my daughters name.

Resolved Question:

Just over 7 years ago, I purchased a flat in my daughters name. I paid cash as I was doing well in my career (c£295k) and hoped that best case scenario the flat or cash value would be hers without the need to pay IHT if I lived for the next 7 years. The 7 years is now up but the career has taken a dive and I need the cash back to live/invest etc. for myself. I also own my own home jointly with my partner. The flat has never been rented out as I have mainly used it for working away from home. The utilities and council tax are in my daughters name, although she has generally lived at the family home with myself and her mother. She has recently started renting with her partner so I don't want to cause her any taxation issues.
My thought was to sell the flat and put the proceeds (c£350k) in my bank account on the basis of a return cash gift from the sale, like the original cash gift from me to her when I bought it. Am I or my daughter liable for CGT? I am unclear on how HMRC are likely to view such a cash lump sum appearing from such a sale.
Submitted: 2 years ago.
Category: Tax
Expert:  Sam replied 2 years ago.

Hi

Thanks for your question - I am Sam and I am one of the Uk tax experts.

THis sale will give rie to capital gains in your daughters name, as

1) the property was placed in her name and

2) It has never been your main residence.

The gain will be established as the sale price less than purchase price, this forms the initial gain, From this initial gain she can then deduct the costs to buy and sell (such as legal and estate agent fees, if in her name) and the costs for any major capital improvements )again these muct be in her name) - then with any gain left over, the first £11,000 will be exempt as this is her annual exemption allowance, and any rmining gain will be liable to capital gains tx.

Plus as you wish to claw the money bck, she will then be considered for Inheritance tax, as she is, in essence "gifting" the money back to you, so she too, must allow 7 years to l;apse so that this is not considered for Inheritance tax purposes.

Let me know if you have anything you wish me to expand on, asthis is just th gist of the situation, and I am more than happy to expand on any elements of my response.

Thanks

Sam

Customer: replied 2 years ago.
Thanks. If the proceeds of the sale were to be paid directly to me, ie, I paid for the flat directly and received the proceeds/benefits directly without my daughter benefitting, could I not declare and pay the CGT through my tax return? If I did that, what would happen?
Expert:  Sam replied 2 years ago.

HI

Thanks for your response

Whoever receive the proceeds sadly will not change the legal capital gain position - as the property is in your duaghters name - so the gain arises on her. Even if you transferred this property into your name prior to the sale, the very act of making this transfer would trigger a capital gain still on your duaghther.

All you can do is let the sale go though - get your daughter to declare the gain - and you pay her capital gain bill - (but note if the bill is more than £3000 then this "gift" starts another IHT consideration- with the need for 7 yaers to lapse for this to be then disregarded.

The sad situation is that the process you put in place to avoid Inheritance tax - by placing this purchase in your daughers name - is not having to be paid through capital gains, there is never a property tax effiecnt ay to proceed, UNLESS the original plan had stayed on tact (i.e. leving the property in your daughters name, but wven then any sale she undertook would ALWAYS have created a capital gain scenerio)

Let me know if I can be of any further assistance, but it would be appreciated if you could rate the level of service I have provided, as this ensures that Just Answer credit me for my time.

Thanks

Sam

Sam, Accountant
Category: Tax
Satisfied Customers: 13777
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 2 years ago.
Just to be clear - if we sell the property and pay the proceeds directly into my account and then declare CGT for my daughter, there will be no extra liability for me other than for my daughter to survive 7 years, ie, that's an acceptable way to receive a cash gift from her? I would prefer her not to have the money in her account for any length of time to earn interest as she has just started claiming statutory maternity allowance together with tax credits and I wouldn't want to affect those. Is this ok?
Expert:  Sam replied 2 years ago.

Hi

Thanks for your further response

As you have already survived 7 years from the date of making this gift, your Inheritance tax position is no longer an issue.

A sale yes triggers the capital gain position for your duaghter as she is selling a property which has not been your her main residence, and then whether she gifts the sale proceeds to you OR they end up directly in your ban account following sale, she then also has an Inheritance tax position to consider - as she is then seeing to be gifting the money to you.

However - this WILL affect her tax credits - even if the money goes directly to you. .

And I have to advise that as this tax credit position is a new factor, and not originally advised on with your orginal posting, as per Just Answer policy this really should be listed as a new question or I can extend your Q & A time if you wish with this original post.

Thanks

Sam

Customer: replied 2 years ago.
Thanks. I would just like to understand why this affects her tax credit position as the information requested from her was purely relating to income from property, of which there isn't any.
Expert:  Sam replied 2 years ago.

Hi

I have issued a request for more Q & A time to deal with your additional position and questions re the tax credits and your daughter

Thanks

Sam

Customer: replied 1 year ago.

Hi Sam,

I never came back for the supplementary question around tax credits as I believe I now understand the implications. However, I would like to draw attention to my original question and the point that I made re my use of my daughters flat. I stayed there on and off/semi regularly for work purposes during the first 2 years. Does that have a tax impact if the flat is sold and the cash gift made to me? Someone suggested to me that I "reserved a benefit" which will give me a tax liability of some sort. Is that true, as you never mentioned it in your original reply, only a CGT implication?

Thanks.

Expert:  Sam replied 1 year ago.

Hi

Thanks for your furtehr question

Your stay there ahs no iplcations - reserve with benefit applies for Inheritance tax when a property you won is gifted - and you remain in a position of benefiting from its use .

This is not the case here - so the capital gain position remians as you daughters and then she will have an Inheritance tax position re gifting the proceeds to you.

Thanks

Sam

Customer: replied 1 year ago.

Thanks, ***** ***** clarify things.

Expert:  Sam replied 1 year ago.

Hi

You are very welcome

Thanks

Sam

Customer: replied 1 year ago.
Hi Sam
Sorry to harp back to my original question so long after but could my use of my daughter's flat be construed as having a pre owned asset and make me liable for a tax liability having purchased it for her future?
Thanks
Expert:  Sam replied 1 year ago.
Hi
This should be listed as a new question as so much time has lapsed
Thanks
Sam
Customer: replied 1 year ago.
To be honest, I asked early in the thread "there will be no extra liability for me"? and I was just checking this wasn't missed as I've just heard of it but you never mentioned it in your reply as a liability so I assume that it doesn't apply.
Expert:  Sam replied 1 year ago.
Hi
And I gave you a full answer - as it was all based on the fact the purchase was made in your daughters name and you wanted it back into your name (or the funds through a sale) I answered fully.
You are 4 months later now asking me a new question regarding a tax regime that only applies when you owned a property - then gifted it and continued to make use of it.
This is the not the case here - hence the reason I did not raise it as an issue.
Thanks
Sam

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