setting up a trust

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    setting up a trust

    hoping for some help,
    I have bought a property for £75,000 a year ago now worth about £85,000
    to plan for GCT if I Set up a trust for my son who is 16 and transfer property to it,
    what way does this work when it is sold if I am beneficiary.. will he get the profit and spend as he likes or does it have to be for some purpose eg college and
    does he have to demonstrate this to the tax office, can he give me some back again as a gift tax free ie can he dispose of the money without demonstrating how to the tax office
    what control if any do I have over the money.

    Is it better to set up a trust and transfer now before the value of the house goes up more. and do the morthage lenders have a say if a property is being transfered to a trust ie can they stop it.

    I am a 40% tax payer if i took some time of work unpaid to bring my tax bracket to a lower level and sold a property during that year would I just have to pay the lower GCT.
    Thankyou

    #2
    Originally posted by confused
    hoping for some help,
    I have bought a property for £75,000 a year ago now worth about £85,000
    to plan for GCT if I Set up a trust for my son who is 16 and transfer property to it,
    what way does this work when it is sold if I am beneficiary.. will he get the profit and spend as he likes or does it have to be for some purpose eg college and
    does he have to demonstrate this to the tax office, can he give me some back again as a gift tax free ie can he dispose of the money without demonstrating how to the tax office
    what control if any do I have over the money.

    Is it better to set up a trust and transfer now before the value of the house goes up more. and do the morthage lenders have a say if a property is being transfered to a trust ie can they stop it.

    I am a 40% tax payer if i took some time of work unpaid to bring my tax bracket to a lower level and sold a property during that year would I just have to pay the lower GCT.
    Thankyou
    Commenting on your last paragraph first, all your taxable income (after allowablw losses (if any) and personal allowances) and taxable gains (after allowablw losses (if any) and annual exemption) are aggregated to calculate your total income tax and Capital gains Tax. Your net taxable gains forms the top slice of your total income and gains. CGT is charged at 10% and/or 20% and/or 40% depending on how much of the taxable gains falls into each of the tax brackets.

    To me it is silly for you to suggest that you should forego £10,000 of income to save £4,000 tax.

    As far as CGT planning is concerned, have you considered other simpler steps such as owning jointly with your wife and/or children?

    You are allowed to transfer the property to your son by way of an effective loan equal to the value of the property. The transfer will be a chargeable disposal at market value for CGT purposes. If and when your son disposes of the property in the future, he could keep the gains and repay the original loan to you.

    When you transfer to your son, you will need to repay the mortgage and your son will need to apply for a new one.

    On the other hand, you could gift the property to your son subject to the outstanding mortgage thereon. This way everything carries on as before except the property and the mortgage belongs to your son. You will need a Trust Deed for this through your solicitors. Importantly, consider the position if your son wishes to sell the property and gamble away the money.

    If you are serious, you need professional advice.

    Ramnik
    Private advice is available for a fee by sending a private message.

    Comment


      #3
      Thankyou for your reply. I have tried professional advice, and they more or less were useless , hence I am using his very useful site, could you recommend someone?

      Are you saying I can gift this to my son now in total at it's current value(even though 16), when it is sold he pays of the existing mortgage and it is GCT free , does he have to reside in it for a period of time. ? again can you advice somene to contact, the tax advsior companies I have tried have been useless.

      Thankyou

      Comment


        #4
        Originally posted by confused
        Thankyou for your reply. I have tried professional advice, and they more or less were useless , hence I am using his very useful site, could you recommend someone?

        Are you saying I can gift this to my son now in total at it's current value(even though 16), when it is sold he pays of the existing mortgage and it is GCT free , does he have to reside in it for a period of time. ? again can you advice somene to contact, the tax advsior companies I have tried have been useless.

        Thankyou
        Sorry, I cannot advise anyone, nor do I take your comments that 'they are useless' at face value.

        I stated:

        ''You are allowed to transfer the property to your son by way of an effective loan equal to the value of the property. The transfer will be a chargeable disposal at market value for CGT purposes. If and when your son disposes of the property in the future, he could keep the gains and repay the original loan to you.''

        ''On the other hand, you could gift the property to your son subject to the outstanding mortgage thereon. This way everything carries on as before except the property and the mortgage belongs to your son. You will need a Trust Deed for this through your solicitors.''

        If your son sells the property, he has to declare his gains and pay any CGT thereon.

        If he uses the property as his only or main residence, he can claim PPR relief to cover the gains.

        Ramnik
        Private advice is available for a fee by sending a private message.

        Comment


          #5
          If I do it as a gift now and it is worth £85,000 as opposed to the £75,000 I bought it at and he sells it when he is 18 as a student with no income say for£120,000 how much would be liable for GCT if it is not PPR.
          Thanks

          Comment


            #6
            Originally posted by confused
            If I do it as a gift now and it is worth £85,000 as opposed to the £75,000 I bought it at and he sells it when he is 18 as a student with no income say for£120,000 how much would be liable for GCT if it is not PPR.
            Thanks
            If you sell it for £85,000, you will make a gain of £10,000. taking into account the buying and selling costs etc, and the £8,500 annual exemption, you will have nil or negligible CGT liability.

            If you transferred to joint name with your wife before selling or transferring, you could sell/transfer when the value is approx £95,000 without incurring any or little CGt liability.

            If you transfer to your son at £85,000 and he sells in a couple of years when the value has gone upto £120,000, he would have made a gain of approx £35,000. If he has no other income or gains in the tax year of disposal, he will be taxed on approx £25,000 after deducting annual exemption. Tax on this at 10% and 20% will be approx £4,700.

            Are you married? If yes, why is the property only in your name?
            Does your wife work and if so what is her annual income?

            Consider transferring in the joint names of yourself and/or your wife and/or your son. All rental profits and gains on disposal will be divided between the number of joint owners and in the proportion in which each one owns their share. All of this could be done by a Trust Deed.

            Ramnik
            Private advice is available for a fee by sending a private message.

            Comment


              #7
              no I am not married and I thought you could only transfer when my son was 18?
              Can I just clarify the profit I have made before making it as a gift, ie £10,000 is this taxable for gct and do I have to get an evaluation on it's current value before it is made a gift, otherwise I could just say it is valued at £75,000. therfore is it better to transfer as a gift sooner rather than later before it goes up in value further?
              In advance many thanks

              Comment


                #8
                Originally posted by confused
                no I am not married and I thought you could only transfer when my son was 18?
                Can I just clarify the profit I have made before making it as a gift, ie £10,000 is this taxable for gct and do I have to get an evaluation on it's current value before it is made a gift, otherwise I could just say it is valued at £75,000. therfore is it better to transfer as a gift sooner rather than later before it goes up in value further?
                In advance many thanks
                All transfers between family members have to be at market value. The tax office will have your valuation checked out by their official valuer. It is OK for your value to have risen by at least £8,500 as this is covered by your annual exemption, unless you have used this allowance against any other gains of the same year.

                You could transfer say half share only to your son before 5 April 2006 and the other half sometime in the next tax year after 6 April 2006. This way you are only crystallising half your gains in the current year (covered by £8,500 annual exemption of this year) and the other half in the new year (covered by approx £8,750 annual exemption of the new year). This way, you could have the value as high as £90,000 and still have no Capital Gains Tax. Your son will have a base cost of the value at which each half has been transferred by you. This base cost will be used in his calculation when he sells the property in the future.

                Yes, you cannot transfer into your son's name but you can transfer into someone else's name (it could be you) as a trustee for the benefit of your son. As far as I am aware, you don't need to change anything at all if you don't want to do this but simply have the transfer recorded as a Trust Deed by your solicitors. This way, the Title Deed and the mortgage will carry on as before except that the beneficial owner will change from yourself to your son. You need to take legal advice before proceeding.

                Ramnik
                Private advice is available for a fee by sending a private message.

                Comment


                  #9
                  Originally posted by robbyd
                  Ramnik,

                  You said 'If you transferred to joint name with your wife before selling or transferring, you could sell/transfer when the value is approx £95,000 without incurring any or little CGt liability.'

                  Does a transfer to a joint name like this invoke Stamp Duty since there is a change in ownership?

                  Regards,
                  SDLT is charged on the consideration at which the property is being transferred.

                  Transfers by way of gift counts as NIL value for SDLT purposes.

                  But if a mortgage secured on the property is being transferred to the recipient of the gift, the mortgage amount counts as the value at which the property is being transferred.

                  Ramnik
                  Private advice is available for a fee by sending a private message.

                  Comment

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