Divorced mum is 70, looking to offload her main resident worth around £1m and move in with a friend. Aim is to manage IHT. She heard from a friend that the optimum way is to gift the property into a company, of which the two children are shareholders. I’ve identified the following:
- Gift by mum will be a PET
- Is stamp duty payable despite it being a gift to the company? If so, is this the 3% surchage rate as one of the company already owns a property but not the other?
- Can one of the children live in the house rent free?
- No CGT on transfer as it has been mum’s PPR
- Company will be treated as an investment company = BPR for children
- On eventual sale of the property, CT is due
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I really do wish that clients would not talk to friends about stuff that those same friends heard from a mate down the pub who read it on the internet so it must be true.
A gift to a company cannot be a PET - it is a chargeable lifetime transfer and after the annual allowance and nil-rate band the excess will be taxed at 20%. So a liability of £133,800 - less than the 40% on death but still hardly the 'optimum'. There would be no SDLT liability provided that the transfer is not in return for the issue of shares, in which case MV will be used, if there is a liability it will include the 3% surcharge as that applies to all acquisitions of residential property be a company. Why do think BPR is available for an investment company in the children's hands? You are correct that on disposal CT will be due on the capital gain.
There would be no SDLT liability provided that the transfer is not in return for the issue of shares.
No. The company owned by the children is a connected company, and so market value applies for SDLT purposes, in any event, by virtue of FA 2003, section 53.
I am happy to report though that the 3% "surcharge" will not apply if the daughter is going to live in the property; the reason being is that the rate of SDLT is 15% on the whole £1 million
Oook... Also, there will be an ATED charge and a BIK charge if the daughter lives in the property. Those will arise annually; that is what the "A" in ATED stands for.
Other than all that, it is a very solid plan.