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bigduckontax, Accountant
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Tax on a housing ransaction, My (ex)partner and I have been

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Tax on a housing ransaction
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Customer: My (ex)partner and I have been living in the current house for 20 years. She is now moving to Scarborough, where we are buying a house. The current house is in joint names. The plan is for me to take over the whole of the current house by transfer of equity for no consideration, then she buys the house in Scarborough in her name. I provide the money, essentially giving her half (125,000) and the other half as a deed of trust. Are there any tax implications, other than inheritance tax if one us dies within seven years?
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Submitted: 11 months ago.
Category: Tax
Expert:  bigduckontax replied 11 months ago.

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question.

Your current house is the pair of you's sole or main domestic residence so the transfer to you of her share will be entitled to Private Residence Relief (PRR). Although this transaction counts as a disposal for Capital Gains Tax (CGT) purposes PRR relieves any gain at 100%.

Any gift to her will be a Potentially Exempt Transfer (PET) in your Inheritance Tx (IHT) affirs. PETs run off at a taper over seven years and in the event of your decease within this period are added back to your estate for IHT purposes. IHT kicks in at 325K at a flat rate of 40% on the surplus and PETs are the first to suffer IHT. If your estate is insufficient to meet the IHT on the PET the liability cascades down to the beneficiary for immediate settlement. The classic defence against a PET is, of course, a reducing term life insurance policy.

Only one problem remains; you mention a 'deed of trust.' Please be so kind as to expand upon that wording.

Customer: replied 11 months ago.
This was something suggested by the solicitors handling the conveyancing. The house in Scarborough is £250,000. The money for this is coming from me. Half of this I am giving to my partner outright. The other half would be covered by a "deed of trust" which, as I understand means that she would give it back if and when she sells the house. Not sure if this means she agrees to give back half the value of the house, or £125,000 - I have not yet seen the actual document. The house in Scarborough would be in her name only, and I would not live there.
Expert:  bigduckontax replied 11 months ago.

Trusts can be extremely complicated on the taxation front. I would advise you to seek the taxation position of such a trust from the solicitor who recommended it if they are even aware of the taxation dangers in this area.

This sounds like a bare trust to me and you are liable to Income Tax on any income earned by the trust. In the scenario you set out there would be no income hence no tax liability.

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Customer: replied 11 months ago.
OK, nothing has yet been done, so I will seek further information from the solicitors. You have answered the primary question, which is very helpful. Thank You.
Expert:  bigduckontax replied 11 months ago.

Thank you for your support. Trusts can be an absolute minefield unless set up correctly. You might be better to protect you position with the Scarborough house by placing a charge on the title. You would then be paid out from any subsequent sale.

Expert:  bigduckontax replied 11 months ago.

Thank you for your most generous bonus.

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