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bigduckontax
bigduckontax, Accountant
Category: Tax
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My parents have some rental properties that they wish to

Resolved Question:

My parents have some rental properties that they wish to transfer to myself and my siblings to reduce their estate value and inheritance tax.

The properties currently have mortgages. If they transfer them, would they be treated as a Sale with CGT to pay? So would myself and my siblings have to pay Stamp Duty and if so, would it be based on the rate of BTL stamp duty?

If my parents redeem one of the mortgages and own the property outright and transfer to us, would it still be classed as a sale with CGT and stamp duty?

If they do pay off the mortgage and transfer, how would the transfer be treated in terms of IHT in the future (would this come out of their estate immediately or is there the 7 year rule or any other time factors)?

Submitted: 9 months ago.
Category: Tax
Expert:  bigduckontax replied 9 months ago.

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

All these proposals constitute disposals for CGT purposes. The SDLT position depends upon the buyers status, if for them they are second homes then the 3% surcharge will apply.

Gifts are subject to the seven year rule in the donors' IHT affairs. They are Potentially Exempt Transfers (PETs) and run off at a taper over seven years. In the event of a decease within that period they are added back to the donors' estate and are the first to suffer IHT. If the estate is insufficient to meet the IHT on the PET the liability cascades down to the beneficiary for immediate settlement.

All in all, not very good news I regret.

Customer: replied 9 months ago.

When my parents transferred their own home to us and we later sold it a few years later, the accountant said the seven year rule did not apply after the property was sold. Is that a different scenario to this?

Expert:  bigduckontax replied 9 months ago.

Assuming that your parents gifted the property to you then the PET rules would apply. However, they would only kick in if your parents passed on within the time frame and their estate could not meet the IHT on the PET.

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Customer: replied 9 months ago.

Thank you. So if the property still has a mortgage on it and they want to transfer it to us, is that more like a sale so there would not be any IHT if we have to raise a mortgage to purchase it? So it is not a transfer but effectively a sale?

Can a property with a mortgage even be transferred?

Expert:  bigduckontax replied 9 months ago.

A property with a mortgage can be transferred providing the organisation providing the mortgage agrees.

The transfer would still be a disposal for CGT purposes for your parents. If it is gifted to you then a PET is still created with the possible consequences I have set out.

Please be so kind as to rate me before you leave the Just Answer site.

Expert:  bigduckontax replied 9 months ago.

Thank you for your support.

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