inheritance tax/ capital gains and gift tax

[nigelclose]

Hi guys,

I have a question which may involve any one of the follow:-

INHERITANCE TAX/ CAPITAL GAINS AND GIFT TAX

My father and I own a house together and both of our names are on the deeds.
I want to remove my fathers name from the deeds as a mutual agreement and leave only my name on the deeds.
Is this liable to Gift Tax? Is this seen as a Gift? Am I going to be hit for Capital Gains tax?

Any help with this question will be much appreciated.

Thanks

[Loosehead]

Ok forget capital gains, you only incur that when you make a capital gain over your allowance by selling something for more than you paid. There is no such thing as "Gift Tax" so that leaves us with inheritance tax. Inheritance tax is payable on an estate after death. Now this is where it becomes a bit more complex. if your dad gives you half the house and dies within 7 years then inheritance tax will be payable if the total estate exceeds the current IHT threshold(250000 I think) however the estate will gain relief at 1/7th of what would have been payable for each year he survives(on the house NOT the rest of the estate). So in short if he survives for 7 years then the half of house he gave you is out of the IHT calculation altogether. That is not to say that the rest of the estate will not incur IHT it depends how much it is.

[kags]

You cannot forget Capital gains Tax I'm afraid. Your father will be giving you half the property, this gift will be treated as being at the market value at the date of the gift even if no money changes hands. If he has not always lived in the house, and the value at the date of the gift is more than the original cost of the house, then a Capital Gain will arise on the uplift. This will be reduced by a taper relief which increases depending on how long the house was owned, if it was acquired prior to 1998 there is an inflation allownce for earlier years, and also there is an annual exemption from Capital Gains (currently �8500) So depending on the amounts concerned, this could result in a tax liability for your father.  The Inheritance Tax position is as Loosehead described, it will depend on whether your father dies within 7 years of the transfer.

[Loosehead]

Can you refer me to your source kags.

CGT is only payable on a capital gain Ie when you sell something for more than you bought it. The "half house" is a gift and is tax free unless it comes under IHT due to the 7 year rule.

[kags]

my source is 19 years experience as a Chartered Tax Adviser. Here is a link to the Inland Revenue's CGT leaflet. This is a complicated area in fact, and we should be careful about telling people to ignore a particular tax.

http://www.hmrc.gov.uk/leaflets/cgtfs1.htm#b2

[Loosehead]

From an example that site It seems the Giver may be liable to CGT not the receiver.

[kags]

yes, which is why I said there may be a liability to nigelclose's father in my reply.

[Loosehead]

He said "Am I going to be liable for CGT"

[zmudge]

Even if no money changes hands hands a Revenue Form known as SDLT 60 must be completed and sent to the Land Registry. A SDLT 60 can be downloaded from here . The position with Capital Gains Tax is not correctly stated in the first answer above - the current threshold is �275000, and with gifts for years 1-3 there is no reduction in any tax due, and then the reduction for years 3-4 is 20%, 4-5 40%, 5-6 60% and 6-7 80%.

[zmudge]

Two many hands !!!

[zmudge]

And a second correction. I meant to say "the position with Inheritance Tax is not correctly stated in the first answer above", not Capital Gains Tax. Typing into these little AnswerBank boxes is sending me cross-eyed !!

[josieann]

Just a thought why doesnt your dad sell his half share to you for a nominal amount he doesnt have to sell for the market value Im sure. That way his name will come of the deeds.  Might cost you solicitors fees etc but it probably will be a lot less if you have to pay tax.