How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 5082
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

My wife and I are thinking of using our joint savings to buy

This answer was rated:

My wife and I are thinking of using our joint savings to buy a holiday property in the UK to be registered in the names of our 2 adult children. The property would be used for holidays purposes only by our children and their families, and also by my wife and I.If either or both of us survive beyond a further 7 years from the date of the transaction will the property be considered to be outside of our inheritance for tax purposes?Obviously, there will need to be a witnessed written agreement between our children on the rules of disposal should either of them wish to sell their 50% ownership of the property.Are there any other specific issues we need to be aware of, for example, if both my wife and I die before 7 years have elapsed?

Hello, I am one of the experts on Just Answer and pleased to be able to help you with your question. There are two dimensions to this problem.

There is a danger here of this transaction being classed as a gift with reservation and the 7 years not start to run until your use of the property ceases. It would be much safer for the pair of you to make the gift then pay a commercial rate for your holiday occupations.

Also, the gift will count as a disposal for Capital Gains Tax (CGT) purposes and you will be taxed on the gain made from the acquisition cost and a disposal at current market value less disposal costs.

I am so sorry to have to face you with this unexpected levy. CGT is a thoroughly nasty little tax liable to rear its head unexpectedly and bite.

Customer: replied 1 month ago.
Thank you. OK, so after making the gift we should pay a commercial rate for usage by my wife and me.
However, I don't quite understand that if we make the gift it counts as a disposal for CGT even after 7 years and/or our death? Is there some weblink you can give me that explains all this?

That is what I would advise to avoid any suggestion of making a gift with reservation.

I did warn you that CGT was a nasty little tax. I know of one case where a man bought a house for his son to live in whilst attending Uni. In the end the son remained in occupation of what was his father's house for many years after. When Dad came to sell the CGT bill was 38K for a dwelling he never occupied or enjoyed.

You have an interest in landed property and you sold it, this attracts CGT, end or story, sorry.

Customer: replied 1 month ago.
Does that mean that the gift of a property which will registered in the joint names of my two children will attract CGT on the estate of my wife and me after 7 years? In the example you mention it reads like the the father remained as the registered owner which, of course, would attract CGT. Not quite the same as the scenario I gave you.I'm proposing a property (gift) in the joint names of two children, excluding any vested interest of my wife and me, other than a daily rental payment whenever we use the property. After 7 years have elapsed I cannot understand how we would be liable for CGT, presumably the children would be if they sold. I expect their tax liabilities on disposal beg oter questions.

The gift of the property creates a Potentially Exempt Transfer (PET) in the donor's Inheritance Tax (IHT) affairs. The PET runs off at a taper over 7 years. It will also trigger a CGT liability for the donor as it constitutes a disposal.

You would be liable to CGT on gift because you have disposed of the property, simple as that.

Customer: replied 1 month ago.
My apologies for being pedantic. The holiday property has not been purchased, as yet. Therefore, if we give each of the children sufficient cash and they agree to buy the property jointly, including all the buying costs, then our the cash will count as gifts to them and be subject to the regular inheritance taper rule over 7 years presumably?In this scenario we would be arms length from the property's acquisition and disposal. Should the children then agree to sell the property after a few years then THEY will face CGT understandably. Will their CGT be subject to a tapering reduction from the time of receiving the cash?In summary, is my plan of no real financial benefit to them or us, other than the children would have the benefit of usage at the holiday property

First paragraph, yes.

Second paragraph, No.

bigduckontax and other Tax Specialists are ready to help you

Thank you for your support.