Hi,
My parents (late 60s) have a property valued at c £850k. Obviously this will be an IHT problem when they both leave the mortal world
Bought in about 1995 for 130k so also a considerable CGT liability if transferred/ sold.
We are considering undertaking extensive development works which will involve gearing up to the tune of about 700k.
Net value will then be 150 for a brief moment before works start and cash is reinvested.
Is this an opportunity to transfer the whole asset at nil gain? Cash raised would be owner by the parents still and would have to be loaned to us to do the development but at least the value of the cash is not likely to appreciate over the next 10 yrs!
One other idea i've had is to do the same but rather than transfer to children, they incorporate and then rinvest the cash taken out pre incorporation. Thus also negating IHT problem.
Thoughts VERY welcome
Jamie
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Replies (4)
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IHT
sounds like you need some proper advice, given what you have mentioned above you will get yourself into a whole lot of needless trouble if you carry on without seeking professional help.
Ignore the borrowing for CGT
I presume by "gearing up" you are referring to borrowing £700k against the property. That is not a cost allowable for CGT purposes. You will still have the same capital gains tax problem. However, if your parents have used this property as their home and have had no other property which they have used as their home then Capital Gains tax is not the issue. Inheritance Tax will be your bigger problem.
I agree with the previous response. You do need to obtain professional advice.
I agreee with the above comments
You may be able to do something, but it would need a full review for anyone to give you proper advice, with the numbers involved it is daft not to do it propertly. The transfer to minor children will not be effective because the settlement provisions will apply.
Virtual Tax Support for accountants and advisers: www.rossmartin.co.uk
I am assuming that the property is not your parent's PPR as capital gains would not be relevant. So assuming that it is some sort of investment property, is the objective for your parents to gift the property to you because they do not need it and/or they do not need the income from this?
Or is this a second home that your parents want to transfer to you in their lifetime to get it out of their estate? If this is the case, then it also sounds like your parents want to do this in "name only" and they will retain some sort of benefit from it. In which case the gift will be ineffective for IHT because of the reservation of benefit provisions.
When your parents die there will only be an IHT problem not a CGT problem because the estate gets a CGT uplift at the date of death.
As Paula has said, you will have IHT issues rather that CGT issues.
I cannot see any mention of minor children. Are there minor children to which the property is intended to pass? The settlement provisions only apply when parents are passing property to their own minor children.
It would be helpful if you could say what you are trying to achieve.
Do you want to reduce their estate for IHT?
What is the value of the rest of the estate?
Do they need the income from the property or will they use the property?
You have not really given enough information to be able to discuss this. If you tell us a little bit more, we could help you.