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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4972
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I want to buy a second property purposes. If i put it in my

Customer Question

hi,
I want to buy a second property for rental purposes. If i put it in my sons name (18 and a student) I will avoid the extra stamp duty and also less tax on rental income. What happens when he sells it and gives me the proceeds ? what the tax implications.
I understand the 7 year IHT rules for me buying him the house.
Thanks
Submitted: 1 year ago.
Category: Tax
Expert:  taxadvisor.uk replied 1 year ago.

Thank you for your question.

If your son is the only owner of the property then there is no extra stamp duty to pay as the property would be registered in his name and also this being his first residential property, extra stamp duty is not applicable.

You could draw a legally binding agreement that he would return the initial capital outlay on the sale of the property. As far as the gain on sale is concerned he could gift you that sum.

IHT implications -

If you loan him the amount, then it remains part of your estate for IHT purposes and the 7 year IHT rules don't apply. If you gift him the money, then it is treated as a potentially exempt transfer and 7 year rule applies.

If your son gifts you what is the eventual profit on sale of property, then it would be a PET for his IHT purposes.

If your son lives in the property throughout the period of ownership, any gain made on sale of it would be exempt from CGT as it would be covered by private residence relief. AS the property would be in his name I have covered how you should handle the transfers in a tax efficient way.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 1 year ago.
Regarding,
'If your son gifts you what is the eventual profit on sale of property, then it would be a PET for his IHT purposes'.My question is more around if he gifts me the whole sale proceeds including any gain, rather than just the profit.. Also what is PET ?If I'm correct in what you are saying, when he returns the money to me, it is his inheritance allocation to me (his father) and the same IHT rules apply but in the opposite direction (son to father)Arif
Expert:  taxadvisor.uk replied 1 year ago.

Thank you for your reply.

Whether he gifts you the profit on sale or the sale proceeds, the amount would be deemed a potentially exempt transfer as far as his wealth goes for IHT purposes. He would be gifting you the sum and if he survives for 7 year from from the date of the gift, then the amount concerned would be out of scope of IHT.. the same way as you gifting him the amount to purchase the property in the first place.

I hope this is helpful..

Expert:  taxadvisor.uk replied 1 year ago.

PET stands for potentially exempt transfer

Customer: replied 1 year ago.
Actually, I thnk you answered the question here
'You could draw a legally binding agreement that he would return the initial capital outlay on the sale of the property. As far as the gain on sale is concerned he could gift you that sum.'So to be clear when he returns the original amount which I funded the property with, there is no tax implications and the original amount to him and back to me (not considered a gift)
Expert:  taxadvisor.uk replied 1 year ago.

Thank you for your question..

Granting of a loan and a repayment of it has no tax implications as it is movement of capital without a gain and it is not considered a gift.

I hope this is helpful.

Customer: replied 1 year ago.
Thanks very much, all proving very useful. In conclusion then,
- I can purchase him a property at reduced stamp duty (first time buyer),
- Put a binding agreement in place for the loan and the return of
- any gains via increase in house price which is returned to me, can be treated as a gift and under the 7 year IHT rule could be tax free.
- the returns of the initial loan is tax free as there is no gain, only movement
ArifArif
Expert:  taxadvisor.uk replied 1 year ago.

Arif, thanks for your reply.

You have summarised the plan well.

If you are happy and there are no more issues I will appreciate if you would kindly rate/accept the service I provided to ensure I get credited for it by Just Answer.

taxadvisor.uk and other Tax Specialists are ready to help you
Customer: replied 1 year ago.
np, 5* given, hopefully this is also an acceptance, as I cannot easily see a separate button to accept and close case.Many thanks
Expert:  taxadvisor.uk replied 1 year ago.

Thank you for accepting my answer.

Best wishes

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