Selling Property

[raysparx1]

Can anybody give me advice,

We own two small cottages worth about �110,000 each
can we legally sell them cheaply to our sons say for �70,000 each to help them get on the property ladder, or would it be looked into as a possible tax avoidance ?

any advice will be appreciated,thanks

[WendyS]

Ray, am not an Inheritance tax expert but I suspect that if you or your wife died within 7 years they would be subject to Inheritance Tax although I believe there's a sliding scale of reduction over this period. Nobody likes having to pay legal fees for advice but I suspect you might be wise to consult one, unless you can Google "Selling property cheaply to avoid Inheritance Tax" or something similar and come up with an answer that way. Frankly I'm all for avoiding paying Inheritance Tax if possible. We pay enough in our lifetime without paying again when we die.

[naz_nomad]

If you put the properties up for auction and they only fetched 70k, that'd be ok ..so I can't see the problem.

[raysparx1]

Thanks you two, we aren't trying to avoid any tax,we are only in our fifties but our two sons cannot afford to buy,so we thought well we own two little cottages we bought as a pension, but we would love to give them one each,but I am self employed,so can't afford to do that, but you have both raised good points,we will have to talk to someone, and as naz says,if they fetched a low amount at auction nothing would be said, thanks again, Ray

[Buenchico]

There's no problem at all with selling the properties below their market value. (It's your property and you're free to do what you like with it).

However, if you die within 7 years, the tax man will treat each sale as if you sold the property for �110,000 and then gave �40,000 back as a gift. i.e. you'll have given a total of �80,000 in gifts.

You're allowed to make gifts of �3000 each year without this counting for tax purposes. Additionally, you can carry forward an unused allowance from the previous year. So, assuming that you you don't make any other gifts in the two relevant years, the tax man will disregard �6000 and treat the sale of the properties as including gifts, from you, of �74,000.

When the total value of your estate is calculated, all of the usual things will be added together and then an additional �74,000 will be added on top. Inheritance tax will then be charged at 40% on the amount by which the total value of the estate exceeds the threshold (which is currently �285.000). If the value of the estate was already above �285,000 before the gifts were added in, that would mean that the inheritance tax would rise by 40% of �74,000 (= �29,600).

Remember, though, that the starting figure for calculating your estate would start �220,000 lower, because you no longer owned the cottages, so things wouldn't be quite as bad as the previous paragraph might indicate.

Remember, as well, that those gifts of �74,000 only count if you die within 7 years. After that time, they're completely disregarded.

Chris

[raysparx1]

Thank you very much Chris,that is really helpfull,
we can now sort things out,thanks again all for your knowledge, Ray

[lady_p_gold]

Well I don't know ... what about stamp duty (my parents tried this when they wanted to do a straight swap with another couple and there was a difference in price and they thought why don't we just knock 50k off both properties and save stamp duty and when they called the Stamp Duty office they said that any property sold well below market value would be looked into ....) so not sure whether that would come into it .

[raysparx1]

Thanks lady p,

another good point,I don't know anything about that side of it, it seemed so easy when we first thought of it, might have guessed it wouldn't be, thank you, Ray

[WoWo]

"There's no problem at all with selling the properties below their market value. (It's your property and you're free to do what you like with it)."

As lady_p_gold says any attempt to sell a property for much less that "markey value" could be investigated for Stamp Duty avoidence, however given the properties you mention would be under the current stamp duty level of �125,000 that won't be a problem.

I'd speak to a solicitor to make sure you are covered.

[raysparx1]

Cheers WoWo,

If the stamp duty is that amount,then great news, we had one valued last year at �100,000 and the other is almost finished so I thought maybe an average of 110 each, but will speak to Solicitor,thanks for your help, Ray

[pagey]

you can sell them for as little as you want to whoever you want. Remember though, that if you sell them for �1 each that just means your sons will have loads more capital gains tax to pay if they sell the property in the future.

[Catso]

No, pagey, if they were living in them, there is no CGT on your principal residence. (Yet)

[raysparx1]

HI pagey and Catso, Thanks for answering, So no Capital gains on the property you live in ? as you rightly say Catso YET,, I am going in next week to see a solicitor and start the ball rolling before they bring in a breathing tax!!!!

[oldhenry]

You need a solicitor to really make the transfer anyway, so they will sort the stamp duty question, also get a proper will drawn up to avoid problems in the future.
a few hundred quid for a proper will is worth it- ( I am not a solicitor) . don't mess with forms from Smiths if you have property and money to pass on

[raysparx1]

Thank you oldhenry,

We are seeing one when the wife has her day off from work, as you say up to him how he sorts it, as you rightly say got to have proper wills etc, Ray