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bigduckontax
bigduckontax, Accountant
Category: Tax
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Grandparent gives gift of deposit + refurb expenses property

Customer Question

Grandparent gives gift of deposit + refurb expenses for a property to grandchild.
Property held on bare trust by grandparent for child until 18 years or sale (can parent decide to sell on behalf of child?)
Parent makes contributions towards mortgage payments.
Caught by parental settlements legislation?
1) Property is rented out. Rents taxed in parents hands?
2) Property is refurbed and sold- capital gains taxed in hands of parents?
3) SDLT on purchase- additional property +3% or not?
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Gifts are outside the scope of UK taxation. However, a gift creates a Potentially Exempt Transfer (PET) in the Inheritance Tax (IHT) affairs of the donor. PETs run off at a taper over seven years and in the event of decease within this period are added back to the donor's estate for IHT purposes and are the first to suffer tax. In the event of the donor's estate being insufficient to meet the tax the liability cascades down to the beneficiaries for immediate payment. In general terms IHT is at 40% flat rate on anything over 325K. Income in a bare trust for children if the donor is a parent remain that parent's income. However, if a grandparent is the donor, then the income falls to the beneficiary. Frequently where the beneficiary is a minor this will be below the personal allowance and thus tax free. Similarly when sold any gain is a liability on the child who would be liable to Capital Gains Tax (CGT) on the gains subject to the normal reliefs. SDLT is a liability on the bare trust and the trustee responsible for settlement; effectively this makes the child liable. Of course, SDLT will generally relieve the quantum of any gain in the CGT computation.. The parents making contributions to mortgage payments is merely a gift to the child, however the PET rules I explained earlier apply. The parents have no say in the disposal of the trust property. That power is vested in the Trustees, namely, in this case, the grandparent. I do hope that you find my reply of assistance.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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