So a client has a home and is about to buy a new home. They have been trying to sell home 1 for some time but struggling, so rather than losing home 2 they are just buying it (they are financially independent).
They have asked me if they can simply gift home 1 to their son to either avoid or reclaim the 3% extra SDLT they would/will have paid on acquiring home 2. This seems too good to be true (as, although it isn't the plan, the house could then be re-gifted to them at a later date, meaning no CGT (unless the market seriously booms!) and no SDLT extra charge), but I can't see the flaw in the plan. The son will then rent the property out and pass the rent to the parents.
As I see it:
- Gift to family member, so at MV, but PPR takes care of any gain.
- Mortgage free, so no SDLT on transfer.
- Potential IHT issue if client dies within 7 years of gift, but not expected.
- Rent passing to parents will again be a potential IHT issue, but unlikely (bar accident).
Only wrinkle I can see is the son can then no longer move house, as then THEY will be pay the extra 3%. But they could avoid that by just passing the property back (CGT costs permitting).
This isn't an area I have much experience in, so any comments welcomed.