Writing for Taxation magazine, BKL tax adviser Terry Jordan answers a reader’s query about the tax aspects on the transfer of a main residence.
‘Could Taxation readers advise on the tax implications if parents were to transfer a property into their son’s name? The house in question is the main residence of both the parents and their son, the parents having transferred a one-third share to him in 2016. There is no mortgage on the property. The parents are now considering whether to transfer the other two-thirds into the son’s name.
Would there be an inheritance tax or capital gains tax liability either at the time of transfer or in the future? And, given the recent publicity on the subject and its effect on property prices, would there be a stamp duty land tax liability?
The parents will move out of the property when they have found somewhere suitable to live. However, this may not be for some time and, in the meantime, the property remains the main residence of them all.
If there are any other aspects that I am overlooking, I should be grateful for advice.’ Query 19,325– Roland.
Terry’s reply: if there is no mortgage, there should be no stamp duty land tax liability
‘The parents transferred a one-third share in their main residence to their son in 2016. As long as the son has not met more than his share of the running costs, those gifts would have been potentially exempt transfers for inheritance tax purposes because the ‘sharing’ exemption in FA 1986, s 102B(4) would have been in point. That provision, added by FA 1999, s 104, enacted the terms of the ministerial statement during the passage of the Finance Bill 1986 with some changes. It is no longer necessary for the property to be occupied as ‘the family home’ nor for running costs to be shared as long as the donors receive no benefit from the donee so the donors can continue to pay all costs.
On the face of it, the parents’ disposals would not have triggered chargeable gains for capital gains tax purposes and the son’s share would also benefit from only or main residence relief. Gifts are exempt from stamp duty land tax and because there was no mortgage there was no question of the son’s assumption of part of a liability ranking as consideration for stamp duty land tax purposes.
If the parents now transfer their remaining shares in the property, there will be no capital gains tax or stamp duty land tax liabilities, but they will be caught by the gifts with reservation of benefit provisions for inheritance tax purposes for as long as they remain in occupation unless they pay their son a market rent. There will be no income tax charge on pre-owned assets (POAT) because the reservation of benefit charge takes precedence.
On the parents moving out, potentially exempt transfers would be deemed to be made under FA 1986, s 102(4) and the seven-year clock would then start to run. Accordingly, the parents should defer the proposed gift until they move out unless they are in a position to pay rent (which would further reduce the value of their estates).’
This article is also available on the Taxation website.
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