Inheritance or CGT

Inheritance or CGT

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A lady aged 83 has a let property worth £200,000 with vacant possession, plus her own house and other assets making an estate of £450,000. The let property is rented for £1300 per annum on a full repairing lease to aged relatives who have lived there since the 1950s. The 1982 value of the property was £27,000. A sale of the property with vacant possession would create a cgt problem. Can you suggest a way out, is the property covered by dependant relative relief? Could the lady's children buy the property with sitting tenants at the reduced market value, Mum could then give them gifts each year to the annual exemption or make a pet. The children may have to take a mortgage to buy the property which is very old and run down, could Mum help or would this make the situation worse? What stamp duty may be payable?
holly gilbert

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By gpf.francisclark.co.uk
22nd Oct 2004 12:34

Even if PPR relief is not available
based on the facts, then a straightforward planning opportunity exists. Contact me direct if further assistance is required: [email protected]

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By Paul Soper
22nd Oct 2004 16:11

Dependent Relative Relief?
This existed before 1988 and still continues today where the same dependent is in occupation - it required the dependent to be so by reason of old age or infirmity - probably not satisfied back in 1955, but in any event was only available where the property was occupied rent free and without other consideration - so that rules that out. The property in question is simply a buy to let property on which a substantial gain will arise if disposed of now. Of course you could defer sale until after death and the gain will disappear but it will be replaced by an IHT liability at 40% on the full value without deduction for the base cost plus indexation - don't forget that's still available together with non-business taper relief.

If the property continues to be let on these terms its value as a let property could be less than with vacant possession but you'd need to take competent valuation advice on that point. The tenants may be thought of by you as "sitting tenants" and if they are (as the rent level suggests) the value would be diminished quite significantly so a purchase by the kids might be an idea, but how long wouyld they need to sit on the property? Again advice on this legal point would be necessary. As long as its properly structured there is no reason why Ma should not lend them the money to make the purchase and, as suggested, annual exemptions etc could be used to erode into this figure.

As far as Stamp Duty Land Tax is concerned it sounds like 1% depending on the value but do check whether the property is in a disadvantaged area (not as far fetched as it may sound, Regents Park in London is a disadvantaged area!!!) where a value below £150,000 would avoid SDLT. There is no connectred person catch so a purchase at undervalue would at least save a small amount - the balance could be treated as a gift on which SDLT is not payable.

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By ACDWebb
21st Oct 2004 12:59

The property
may qualify for dependat relative PPR relief, but you will need to compare the facts of the case with the rules.

A disposal to the children would be at market value - reduced for the sitting tenants - but if those tenants are old and vacant posession might become available you could saddle the children with a larger capital gain that would not, I think, have the benefit of dependant relative relief as their base cost will be a reduced non vacant value

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