News1 min ago
Tax/Legal implications?
7 Answers
A parent gives their son land with some outbuildings on and planning for a property. The land is valued at �100k. The son uses the outbuildings to build a property which is then valued at �400k.
Are there any legal or tax implications that should be considered?
Are there any legal or tax implications that should be considered?
Answers
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The transfer of the land would be a potentially exempt transfer for Inheritance tax purposes and if the parent dies within seven years there may be a liability (depending on what other estate they have).
Depending on what the parent paid for the property and when there is probably a capital gains tax liability for the parent based on a market value of the land.
Likewise, depending on the cost of the actual building work done, the son has a capital asset that will attract a capital gain if he sells it without lving in it. If he lives in it as his residence though then it's exempt from capital gains for him.
The transfer of the land would be a potentially exempt transfer for Inheritance tax purposes and if the parent dies within seven years there may be a liability (depending on what other estate they have).
Depending on what the parent paid for the property and when there is probably a capital gains tax liability for the parent based on a market value of the land.
Likewise, depending on the cost of the actual building work done, the son has a capital asset that will attract a capital gain if he sells it without lving in it. If he lives in it as his residence though then it's exempt from capital gains for him.
Has he been ' given' �500,000, though.
What is the position:
- Was the �100000 well belowthe true value of the land plus outbuildings? If so, it could be seen asa way of avoiding IHT
-Or did he paya fair price and have to spend a lot of time and money to convert the outbuildings into a �400,0000 property?
What is the position:
- Was the �100000 well belowthe true value of the land plus outbuildings? If so, it could be seen asa way of avoiding IHT
-Or did he paya fair price and have to spend a lot of time and money to convert the outbuildings into a �400,0000 property?
No, has hasn't been given �500k - he has been 'given' �60k - based on the new information provided by Mrs P this morning. (Skyline assumed as I would have done that he got the plot with PP for free). The enhancement in value created by the son is entirely down to his own skill and efforts in converting something worth �100k into something worth �500k. Unless he lives in it, he is going to get stung for CGT on the net gain - as S points out.
The potentially exempt transfer (PET) for possible IHT liability is �60k.
You were wise to have the plot professionally valued (�100k) - HMRC will almostly certainty want such evidence at some point to demonstrate someone is not pulling a fast one.
The potentially exempt transfer (PET) for possible IHT liability is �60k.
You were wise to have the plot professionally valued (�100k) - HMRC will almostly certainty want such evidence at some point to demonstrate someone is not pulling a fast one.
Thank you Buildersmate - however, the son hasnt been given �60k, he has paid his parents �60k for land that is worth �100k. Sorry if I am not being very clear.
However, I dont think it makes a difference to what I was trying to establish and it now seems clearer that the son is not going to be hammered with any taxes in the future which is what I wanted to establish.
I hasten to add this is not my personal question, I have land the size of a small postage stamp!
Many thanks for all your answers and help.
However, I dont think it makes a difference to what I was trying to establish and it now seems clearer that the son is not going to be hammered with any taxes in the future which is what I wanted to establish.
I hasten to add this is not my personal question, I have land the size of a small postage stamp!
Many thanks for all your answers and help.
Then HMRC will assess the PET as �40k. Not an issue if at least one of the parents live for at least 7 more years. If they don't, some of the �40k gets added to the value of the estate of the second one to die, and if that forces the value of the estate over the IHT threshold, IHT would become payable on the estate. I say 'some' because there is a sliding scale and the �40k 'value' assessed reduces after 3 years following the gift, falling to zero at 7years.
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