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Sam, Accountant
Category: Tax
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Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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I want to buy a house for my daughter. Half of the value

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I want to buy a house for my daughter. Half of the value would be gifted. As it would be let for 2 years I don't think I can get a mortgage on my half if we bought in joint names. My intention is to buy in my name then in 2 years to sell my half to her at the price I paid so she benefits from any price rise. Is the gift free from iht if I live for over 7 years. What are the implications for cgt as the hmrc will tax me on any assumed gain even if I sell for less. Is there a better way to mitigate the cgt.
Thanks for your question, I am Sam and I am one of the UK experts here on Just Answer.
If you gift this money, then you are right is stating that as long as your survive for more than 7 years that its disregarded for Inheritance tax.
However if you plan to sell your half to her, then this will not be treated as a gift, but as a loan, as the intent is that she pays back that half original cost to you.
So this will have no affect on the Inheritance tax position, as this will be treated as a debt to the estate if not repaid by the time Inheritance tax needs to be considered.
Then you will be considered for capital gains tax, but not on the fact that the amount loaned is repaid fully - which would negate any gain a rising, but on the half value of the property at the time the sale of your half takes place (as HMRC will treat the half share sale as market value on the property) less the half share you purchased for.
If this "gain" is then less than £11,000 then you will have no capital gain arising, as this is the annual exemption limit, but if its more than £11,000 then you will be liable to capital gains on any amount over and above this threshold.
And of course any rental income you make from the original date of purchase to date of sale of your half share, will need to declared to HMRC - and you do not indicate whether your daughter will live in the property form the original date of purchase, because if not, then she too will have rental income to declare for her half share too.
Then when she owns the property fully, she will declare the full rental income.
If you can advise whether she will live there or not, I can see if there is any better way to mitigate both the Inheritance tax position and capital gains
Customer: replied 3 years ago.

To clarify. The house will be in my name only. When I sell to my daughter half the value will be considered a gift and she will then only pay half the value. She will have no Interest in the property until she buys it. I will declare the rental income to hmrc. In this case will hmrc only charge me cgt on the half. I.e. bought for 100,000 and sold for 140,000. Half would be my gain 20,000 less the 11k allowance. So cgt on 9k. Or would I have to pay cgt on all 40k less the allowance. What is the cgt rate. Thanks

Thanks for your response and for clarifying the position.
No I am afraid that's not the case, you will be considered for capital gains on the whole amount, as up until any change you make with gifting/transferring, the whole property will be considered yours, so you will have in the scenario you present a capital gain of £40,000 of which the first £11,000 will be exempt.
Then the remaining £29,000 will be charged as follows.
If your annual income is more than £41865 then the gain will be charged at 28% - if your annual income is less than £41,865 then some of the gain (the equivalent to any unused basic rate band) can be charged at 18% and any gain over this amount at 28%
For example, an annual income of £30,000 - means you have £11865 unused basic rate band, so the first £11865 of the gain (after the £11,000 exemption allowance has been applied) would be at 18% and the balance (which is £17135 in this example) would be charged at 28%
Then the gifted half will be disregarded for Inheritance tax after 7 years, and the purchased half will already (along with the gifted half) been considered for capital gains.
In this scenario there is no bettering the position, and I will also advise (although I am sure you are aware) that the gifting would only be considered if any loan/mortgage you have taken out initially is fully paid off, as the lender will not permit this.
But I would advise that you seek consideration on putting the property in trust (once any loan/mortgage has been fully paid off) as this too have the 7 year rule for Inheritance tax, and would also be permitted to remain in trust until you pass away, although then the rental income is deemed to be the trusts and trust returns would need comp-letting, which may end up not being a route you wish to take,
And for more information about trusts you would need to consult with a financial expert - of which there is a UK financial section on just Answer, but I am sure you can appreciate we are tax experts and do not have the skills of qualifications to advise on the financial side of matters. Plus there are so many trusts available, you would want to ensure you considered one that met your needs for now and the future.
I'm just about to meet with a client, but will be available again after 11.00-11.30am - so will reply if you have any follow up questions on the tax side of the situation.
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