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TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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, I'm a foreign investor who bought two properties in

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Hello, I'm a foreign investor who bought two properties in Scotland. The 1st property is jointly owned with my daughter who has been living in it for 5 years . My son joined my daughter and has been with her for 3 years. The second property is jointly owned with my son and is a rental property .I'm aware that rules for capital gain are going to change from April 2015 and also non resident will be liable for CGT .Can I pass 50 % of my property to my daughter without losing the right to live in it in the future?If we rent this property can I take the whole rent even in the case that 75 % of the property is on my daughter 's name ?Which solution for the rental property ? Thanks and regards.Assia

Your question about the right to live in a property when you own 25% is more a legal than a tax question but is probably best solved by agreement with your daughter. However, you need to be aware that making a gift with ties could be treated as a gift with reservation of benefit and be ineffective for IHT purposes in that the seven year clock for the value of the gift to leave your UK estate won't start until the reservation comes to an end.

If you give your daughter 50% of your 50% (assumed) interest of the property no later than 5 April 2015, it will be a disposal for Capital Gains Tax purposes as well as a gift for Inheritance Tax purposes. As you are non-resident, the paper gain will be exempt from CGT. The gift will fall out of your UK estate for IHT purposes so long as you live for seven years after making the gift. Taper relief which you can read about here can reduce exposure to IHT. Decreasing term assurance can also cover a potential liability to IHT.

As far as the rental income is concerned, as the property is not owned by a married couple or a couple in a civil partnership, you and your daughter can split the rental income in whatever proportions you like for tax purposes regardless of the ownership shares.

The UK government plan is for CGT to be applied to gains by non-UK residents on the disposal after 5 April 2015 of UK residential property but only on the difference between the disposal proceeds and the value of the property on 5 April 2015. In effect, the value on 5 April 2015 will become the cost for CGT purposes of any share of a property owned by a non-UK resident.

I'm not sure what you mean by "which solution for the rental property?". If you wish to benefit personally from the potential future growth in the value of the property, you have to accept that you are likely to have to pay CGT as many UK resident owners of let property do every year. Your son's share of any gain would be taxable as the property is clearly not his main home.

I hope this helps but let me know if you have any further questions.
Customer: replied 3 years ago.

Hi Tony , Thank you for your reply .

1) if I gift the 50% of my share to my daughter and use occasionally the property or live in it in the future as I will still have the 25 % of ownership, can be seen as a gift with reservation for IHT ? How it' s possible if I still own the 25 % ? My daughter is a doctor and moves a lot . How if the property is rented and i take all the rent ? Will my daughter pay tax on the rental income of this property if she owns 75% and is rented ?

2) If you think it could be an other solution to mitigate tax liability please let me know and I will contact you again .

Thanks and kind regards

1 So long as you make no formal written agreement you should be fine. Given that you live abroad, it would be entirely natural for you to stay with your daughter and your brother when you visit the UK. I just wanted to make you aware. The gift with reservation rules normally only apply to a main residence being given away and the previous owner continuing to live there.

As I said in my answer, if the property is let, you can split the rental income how you like regardless of ownership proportions. Your daughter will only pay tax on the share of rent allocated to her. Even though you are non-UK resident, your share of any rental income is taxable in the UK.

2 I'm afraid that you cannot "have your cake and eat it". Tax avoidance is being closed down in the UK quite aggressively by the UK government. If you make a gain after 5 April 2015, you will have to pay CGT. The first £11,600 of any gain you make will be tax free. Take a look here for more information.
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