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bigduckontax, Accountant
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My son owns a flat with a £200,000 mortgage payable to us plus

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My son owns a flat with a £200,000 mortgage payable to us plus interest to be paid at a time and rate agreed by us (We previously mortgaged our property to release cash for the purchase). The property has doubled in value. We have discussed this as a family and he plans to sell the flat, pay us £300,000, keep £50,000 for a deposit and give £50,000 to his sister. How will this affect us all in terms of tax liability. His sister is self employed.
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. Before I can address this question I need to know if this is his sole or main domestic residence and does he occupy the property?
Customer: replied 1 year ago.
Yes at present he is a student hoping to qualify in 2017 and move out of London
Customer: replied 1 year ago.
Just wondering now if it does qualify as his sole residence as he has our home to return to out of term time if he chooses!
Expert:  bigduckontax replied 1 year ago.
He owns it so it is his sole or main domestic residence. Your home is yours, not his. When he sells the flat he is entitled to Private Residence Relief (PRR) which relieves Capital Gains tax (CGT) at 100%. Any gain he makes is subject to CGT, but PRR reduces it to zero and it i given automatically. Any refund to you of capital sums advanced to him to purchase his flat is outside the scope of UK taxation. Any interest he pays you in respect of this loan is taxable in your hands as part of your income. The UK does not have a gifts tax regime, thank your lucky stars you don't all live in France where gifts tax kicks in at 5K Euros! However, gifts do impinge on the donor's Inheritance Tax (IHT) affairs. Gifts of such magnitude create a Potentially Exempt Transfer (PET). PETs run off at a taper over seven years and in the event of the donor's decease within this period are added back to their estate for IHT. PETs are the first to suffer IHT and if the estate is insufficient to meet the tax on the PET the liability cascades down to the beneficiary for immediate settlement. IHT only applies to assets over 325K and is at 40% on the surplus. The 325K limit is inflated by any inter spousal or charitable bequests. The classic defence against tax on a PET is, of course, a reducing term life assurance policy. I do hope that you find my answer of assistance.
Customer: replied 1 year ago.
Does that mean he could gift an unlimited amount to us and/or his sister?
Expert:  bigduckontax replied 1 year ago.
Yes, there is no limit, but just watch out for the PET and the seven year rule. At his age an insurance protection would be minimal premiums. The UK does not have a Gifts Tax regime.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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