Implications of Gifting a % of Property

[Claymore]

Hi

My main residence is unencumbered. I am thinking ahead (with the thought of the 7 year rule on inheritance tax).

If I gift my son 50% of my property now - would I still be OK to live in the house?

Would there be any immediate tax consequences of gifting him 50% now? My son is nearly 21.

Many thanks
Claymore

[jpkeates]

If you gift land to your son and continue to live there, it's a "gift with reservation" and remains part of your estate for tax purposes.
There's an exception if you pay your son market rate rent, or you both live in the property together.

If you want to pass the property to your son while living there without them or paying rent, you need some kind of trust to pass the property into to work past the reservation.

[Claymore]

Thanks JP. I am thinking of gifting him 50%, he will still be living with me for a few years.

My biggest concern is that if he marries and then divorces etc - how that would affect me!

[jpkeates]

That's another reason to use a trust,
The trust becomes the beneficial owner of the property, so it moves out of your estate for income tax purposes (over seven years).

You and your son would be the beneficiaries of the trust, so should anything happen to either of you, the trust would cease to have a purpose and the survivor would be able to own all of it.
The additional benefit is that the trust also prevents any of your hard earned wealth leaving the family as a result of a divorce, rash gift, badly worded will, substance or gambling addiction on the part of your son (who I am sure wouldn't seem likely to do any of these things, but it happens).
It also protects your son from the same events befalling you.

You need proper legal advice here, though, ideally with your son present.
It's bog-standard family solicitor stuff - and they'll also be able to make sure your wills are sympathetic to the arrangement.

[Claymore]

jpkeates,

That's lovely, thank you so much!

[Gordon999]

The IHT tax rate of 40% tax rate is currently charged on the estate value exceeding £325K ( first £325K is free of IHT tax ) . The £325K starting level for IHT tax may be raised to £500K level, if the family home is left to children of the deceased person.

https://www.gov.uk/trusts-taxes/trus...sponsibilities

The OTS ( Office of Tax Simplification) has made proposals for reducing IHT tax rate ( to 20% or less ) but such proposals may not be acceptable to Government.

[Lawcruncher]

Things to consider:

Think carefully before giving assets away as you do not know what the future holds.

If you put an asset into trust or give it away as part of a tax planning exercise you are going to lose control over it.

If you have fears about what may happen to an asset if you give it way bear in mind that there has to come a point when it is vested in someone who will have abosolute control over it. If you want someone to benefit from your wealth before you die consider whether you should just give it to them.

It is perfectly possible to ensure that your estate passes to whomever you want it to if you have your will professionally drafted. Also bear in mind that a will can be changed to reflect changing circumstances, but a gift or trust is final.

It is unwise to go DIY with tax planning. If your estate is large enough to warrant tax planning you can afford professional advice. If you are thinking of doing a specific thing it needs to be considered having regard to your overall position and also that of the intended beneficiary.

[Gordon999]

To answer your question - Capital gains tax is exempt on capital gains from disposal of main residence.

So gifting 50% of your current home ( main residence ) to your son will be free of sdlt and cgt. You can continue to stay in the property without paying rent because you still own half.

( You should check with a conveyancing solicitor and accountant before you proceed.)