Writing for Taxation magazine’s Readers’ Forum, BKL private client tax specialist Terry Jordan answers a query about the correct process for gifting a share in the family home.
The tax query
‘What is the correct process for gifting a share of property? I am not a tax adviser and I would like to ensure that any recommendations I make are in line with current regulations. I have come across differing approaches on this matter, some of which appear to stretch the rules.
I am currently drafting a will for a client, and in this particular case, I believe that transferring up to a 50% share of the family home to his son may be a sensible option. The son, along with his family, resides in the property, which is ultimately intended to pass to him. The son also owns one buy-to-let property in his own name.
My client is a widower since 2019 with three adult children. His assets are a family home which is mortgage-free and valued at £800,000. He also has seven buy-to-let properties valued at £2m, all on interest-only mortgages totalling approximately £1m (all insured).
What’s the best approach to gifting a share in the family home in this scenario?’ Query 20,557 – Claw.
Terry Jordan’s reply: The gift of the share will be a potentially exempt transfer
‘Claw’s client was widowed in 2019 and if his late wife had not used her ordinary and residence inheritance tax nil rate bands they would have transferred to him. We are told that his home is worth £800,000 and he has buy-to-let properties worth £2m with outstanding mortgages of £1m which are insured.
One of the client’s sons and his family occupy the home with the client and Claw proposes that the client should transfer up to 50% of the property to the son.
Provided the son stays in occupation of the property for as long as the father does and does not meet more than his share of the outgoings, the gift will fall within FA 1986, s 102B (4) and will not constitute a gift with reservation of benefit (GROB), nor will the income tax charge on pre-owned assets (POAT) be in point. (Prior to 9 March 1999 the Inland Revenue regarded the statement of Peter Brooke, minister of state, Treasury Standing Committee G; Hansard, 10 June, 1986, col 425 as governing the position.)
The gift of the share will be a potentially exempt transfer (PET) calculated based on the loss to the donor’s estate. If a 50% share is transferred, the retained half would be discounted to reflect joint ownership by perhaps 10% so the value transferred would be £440,000 with the retained share worth £360,000. This is usually a good thing although there would be capital gains tax (CGT) implications when the property is sold. The share acquired by the son would be covered by main residence relief. The father and the son need to own as tenants in common, not beneficial joint tenants.
Although the son owns a buy-to-let property, there would be no stamp duty land tax (SDLT) on the gift as there is no consideration passing.
If the insurances on the buy-to-let properties would pay into the client’s estate on death the value going forward would apparently be £2,360,000, meaning that the residence nil rate band(s) would be subject to the taper provisions. If the insurances were written in trust so that they did not pay into the estate the residence band(s) should be available in full.
Finally, there are non-tax considerations. Should the son divorce or be made bankrupt, the father’s security of tenure could be prejudiced.’
The full article was published in Taxation magazine (issue 4995) and is available to subscribers here on the Taxation website.
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