Hi All
An interesting situation -
Client and his mother (she is higher rate tax payer) inherit a house. The house is valued for IHT at £330,000. The house has land next to it, which could have a further house built on.
We have suggested, originally, that our Client moves his PPR to this address (his current house has a number of rooms rented out so it can be his rental property) which he has done. We also suggested the Client's mother transfer her share to him, while the value is still at IHT value (this is backed up by valuations).
If the land is developed, the return would be between £120 & £150,000. The existing house, due to a reduced garden would be worth £330k.
The Client has toddled off to his solicitors and they have advised that, rather than the above, they gift a third share to the Client's father, thus adding a further CG allowance to the potential tax calculation. They have suggested to the Client, that the total tax liability, if done this way, will be £12000 total between the three of them. They have indicated that the 'sale of the land' in one tax year and the 'sale of the house' in a seperate tax year will allow them all to utilise 2 lots of CG allowance in any calculation.
As the transfer of the property in not at arms length - would there be a CG issue on a part disposal or would some of it come under a transfer of assets between spouses?
The plan is to let a developer build the second house, with 1/3rd of the sale price going to my Client. This means that he is not in control of the sale or, therefore the gain. If all three of them have a share, the gain is £50k each giving a liability (assuming 28%CG) of £12k each!
While I am aware there is some risk to transfering PPRs, if my Client actioned this and was gifted his mother's share, then both the land and house could be sold under his PPR.
The Client's solicitor has muddied all of this by suggesting there is only a £12k liability in total.
Any observations would be appreciated!
SM
Related resources
Replies (2)
Please login or register to join the discussion.
.
Observation 1:
"our Client moves his PPR to this address"
Given your intentions how is this going to work? Surely by its very nature there it will be a very high bar indeed to show a "degree of permanence", especially if your client then goes back to live in the current PPR. This is risky. Very risky unless it's sat on for a while.
Observation 2:
The solicitors are probably not trying to transfer the asset but undertake a "deed of variation" or in other words changing the Will.
Observation 3:
The mother gifting the house to the son, then the son (presumably) gifting her share of the proceeds back having obtained tax relief might well be the sort of thing the general anti-avoidance provisions seek to attack as artificial. Or they might not. The joy of not knowing where the line is any more as its so faint. If doing this I would go back to the will and a deed of variation if its within the time limit.
Two points
1. Would the sale of the newly built house be covered by PPRR when the seller is actually living in the old house and the new house is sold when the land on which it is built is not, at the time of that sale, being used as part of the garden of the old house?
2. Would CGT apply anyway to what looks like a trading transaction, given that the new house is being built specifically for sale?