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Gifting Property to avoid additional SDLT rate

Gifting away property to enable 2nd home to be purchased, then getting the 1st home gifted back

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Hi all, I have a client that currently owns a single property (no outstanding mortgage) that she lives in and has done throughout ownership. She is wanting to purchase a new home to live in but doesn't really want to part with her original home and instead wants to keep it and rent it out.

She has suggested to me that she could gift her original house to a friend/family member. There is no CGT as PPR exemption applied, and no SDLT for the giftee as no money has exchanged. 

At this point she would be able to purchase a new home at the current basic SDLT rates at it would be her only property.

Then at some point after this, the friend/family member gifts the original property back to her. There would be little or no CGT (assuming the property hasn't increased in value in the short space of time between gifts) and no SDLT as again no money is exchanged.

This all seems too easy to get around the additional SDLT on second property. Is there legislation to avoid this? 

Many thanks 

Replies (41)

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By johngroganjga
22nd Jul 2020 12:54

If the party to whom she gifts the property is under an obligation to gift it back when she asks them to, I would guess that that party is only holding the property on trust for your client - so that your client remains the beneficial owner throughout.

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By Anonymous.
22nd Jul 2020 13:20

Apart from the fact that, as johngroganjga points out, there isn't a gift so it doesn't 'work', how much SDLT would be saved and how much would the legal fees be for 2 transfers?

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Hallerud at Easter
By DJKL
22nd Jul 2020 13:47

Loss of control is the issue e.g.

Party to whom property gifted dies intestate before it is handed back

Party to whom property gifted becomes insolvent whilst holding title to the property

etc etc etc

As with all these sorts of ideas they are usually bad ideas, they are generally overblown in complexity and risk when considered against the possible savings.

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Replying to DJKL:
Psycho
By Wilson Philips
24th Jul 2020 11:03

DJKL wrote:

Loss of control is the issue e.g.

Party to whom property gifted dies intestate before it is handed back

Party to whom property gifted becomes insolvent whilst holding title to the property


Or, party to whom property gifted simply changes their mind about gifting it back. (Assuming that it been their intention to hand back in the first place.)
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By CJaneH
22nd Jul 2020 14:02

Transactions entirely to avoid tax !

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By Duhamel
22nd Jul 2020 15:13

Yes, I guess tax evasion does seem simple now that you mention it.

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By Tax Dragon
22nd Jul 2020 15:16

AccountantMart wrote:

This all seems too easy to get around the additional SDLT on second property. Is there legislation to avoid this?

Superb double punchline.

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By Justin Bryant
22nd Jul 2020 15:37

I bet if you gifted it to a company and the company gifted it back later HMRC would not argue there were no gifts in that case (and you would get short shrift arguing that there was just a bare trust arrangement and there were no gifts at a tribunal), so why is it different and not two gifts if done between two humans (why is a gift, conditional on a gift back 1 year later, not still a transfer of beneficial ownership - the BO has to sit with at least someone at any time even if you choose not to describe such an arrangement as a "proper" gift)?

Gifts are OK to avoid IHT, so why not SDLT also (indeed there would be IHT risks as mentioned above)?

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Replying to Justin Bryant:
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By Tax Dragon
23rd Jul 2020 10:00

Would you do this with your own property?

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Replying to Tax Dragon:
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By Justin Bryant
23rd Jul 2020 10:56

Why is that relevant to anything? If you're suggesting I'm wrong, please explain why with reference to case law and/or legislation (which I can assure you is all a court would be interested in and not (biased) opinions of tax advisors).

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Replying to Justin Bryant:
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By Tax Dragon
23rd Jul 2020 11:30

I take it that's a no. Frankly, that's probably enough said, but to humour you...

I'm ignoring the irrelevant comparison with 'gifts' to and by companies. As you well know, there're all sorts of other tax issues with that.

You also say "Gifts are OK to avoid IHT". An extraordinary comment, since gifts are the very subject matter of IHT. But that's all also irrelevant. (Why are you allowed to make spurious and irrelevant comments and no-one else is, in your view? Why do we all have to back everything up with statute and case law and you talk nonsense at will? And I say that as someone who thinks statute and case law are indeed too little referenced in this forum.)

SDLT is charged, as you know, on consideration. (Who cares about BO?) You call it a conditional gift. Conditional on the recipient committing to making a reciprocal gift. The thought occurs that either that's not a gift of the property, unfettered. The donor still retains a chargeable interest. No SDLT saving. Or else that the consideration for the one gift is the making of the other gift. And potentially SDLT on the 'gifts'.

But this is so stupid (as per your implicit "no I wouldn't" response) that I really can't be arsed to look up statute and case law.

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Replying to Tax Dragon:
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By Justin Bryant
23rd Jul 2020 11:42

Gifts are (obviously) also a subject matter of SDLT (gifts actually avoid SDLT more easily than they avoid IHT, as they are PETs for IHT). The only possible way you are right is to argue that some beneficial interest in the property remains (for the donor) per the case below (and that this is a relevant >£40k land interest for SDLT):

https://www.bailii.org/ew/cases/EWHC/Ch/2020/1810.html

But if it's implemented correctly then that potential problem can be easily avoided.

Anyway, I'll end there since (as usual) you have nothing sensible to say.

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Replying to Justin Bryant:
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By Tax Dragon
23rd Jul 2020 11:54

Justin Bryant wrote:

The only possible way you are right is to argue that some beneficial interest in the property remains (for the donor).

Nope, you only read half (at most) of my comment.

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Replying to Justin Bryant:
Stepurhan
By stepurhan
24th Jul 2020 09:28

Justin Bryant wrote:

https://www.bailii.org/ew/cases/EWHC/Ch/2020/1810.html


I see you have reverted to throwing out links to cases without explaining how they support your view. I recall in the past actually reading one of these and finding it did no such thing.

So, please summarise the facts of this case (with paragraph numbers if possible) to show how they support your view.

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By Paul D Utherone
23rd Jul 2020 10:45

All sounds a bit too preplanned & bound to failure

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Replying to Paul D Utherone:
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By Justin Bryant
23rd Jul 2020 11:00

But if you were right then the taxpayer in my above company gift and gift back example could argue the (Ramsay) point the other way for his benefit (which would be impossible if implemented correctly and in the absence of any sham).

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Replying to Paul D Utherone:
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By Tax Dragon
23rd Jul 2020 11:01

Paul D Utherone wrote:

All sounds a bit too preplanned...

I think "unplanned" is the word I would use. I can't really be bothered to think about it because it's so patently stupid, but one immediately obvious question: Where's the lady going to live between giving her home away and buying her new place? Carry on in the old home? Is that under a rental agreement?

Oh that's three questions. Connected though, so I claim they're a group.

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Replying to Tax Dragon:
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By Justin Bryant
23rd Jul 2020 11:07

What law is there to prevent her living there (or anywhere else she chooses)?

The only way this does not work is if the gift is to a child.

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Replying to Justin Bryant:
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By Tax Dragon
23rd Jul 2020 11:35

IANAL. So I don't know. But I know a lawyer who does, and, if she chose to live in my house, I would give that lawyer a call.

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By leeanthonyblackshaw
23rd Jul 2020 10:56

If she gave the property to me, rather than family or friend, it would definitely work to save SDLT.

Although she would be rather angry and disappointed when she asks for it back.

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Replying to leeanthonyblackshaw:
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By Tax Dragon
23rd Jul 2020 15:40

Ignoring the humour (no... while enjoying the humour), you too are missing Justin's key clause that he's inserted to implement the scheme properly. The gift to you would be

Justin Bryant wrote:

conditional on a gift back 1 year later.

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Replying to Tax Dragon:
Psycho
By Wilson Philips
23rd Jul 2020 16:07

I know that it’s a convenient term but perhaps it would make everyone’s thought processes a little clearer if you all, including the OP, stopped using the word “gift”.

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Replying to Wilson Philips:
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By Justin Bryant
23rd Jul 2020 16:26

Per my above comment (if you read the case I cited) it depends if the gift back is an enforceable legal obligation (that gives you a proprietary interest) or not (if not it's a genuine gift back of the property).

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Replying to Justin Bryant:
Psycho
By Wilson Philips
23rd Jul 2020 17:07

I was thinking more generally - any 'gift' that comes with strings attached isn't really a gift. There could be a number of types of transfer which, if properly implemented, might achieve the stated objective. But I would hesitate to call any of them a "gift". But I understand why some, for brevity, would use the term.

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By justsotax
23rd Jul 2020 17:15

ah reminds me of the 'its a loan' discussion....the loan being non repayable from the outset as obviously the respective scheme would simply not work if the loan was genuinely repayable...….

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Replying to justsotax:
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By Justin Bryant
23rd Jul 2020 18:17

But you should note that there has never been a tax case (to my knowledge at least) where a properly documented loan has not been found to be a loan (and the same applies for properly documented gifts). One dissenting FTT judge in Rangers tried her best to argue that, but failed spectacularly you may recall.

See para 129-133 here: http://financeandtax.decisions.tribunals.gov.uk/judgmentfiles/j11740/TC0...

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Replying to Justin Bryant:
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By justsotax
24th Jul 2020 13:16

wonder how many of these 'loans' have ever been repaid....outside of the Revenue's intervention that is.....erm lets hazard a guess....

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Replying to justsotax:
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By Tax Dragon
24th Jul 2020 14:41

I hate the format of this forum. And the ability (@Paul and Justin) to edit comments that have been replied to. This has all become very disjointed.

Rant over.... but I hate (gosh, Friday lunchtime hasn't improved my mood! I normally hate the word "hate"... it's a horrible sentiment) to say this... but I actually agree with Justin on this one. It's way off the topic of the thread, but the implementation of different loan schemes was not equal. Where it was done properly, the loan still exists and that's why the loan charge bites. (Fairly, IMHO; not so in Justin's.)

What does get my goat is where this (and other) schemes have been mass reproduced (and done wrong). In many of the loan scheme cases, the loans have long since ceased to be loans (clue: the creditor no longer exists). There should have been a tax charge at that time. There wasn't. And that (@Paul) was tantamount to evasion.

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Replying to justsotax:
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By Tax Dragon
23rd Jul 2020 19:17

The irony being that, if I gave you £1,000 today conditional on you giving £1,000 to me this time next year, many people (the sort that used to take Clapham omnibuses, prior to lockdown) might actually call that a loan.

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Replying to Tax Dragon:
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By Justin Bryant
24th Jul 2020 08:52

But TD, there is no legal concept of "lending" a property and you clearly have still not read the above case.

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Replying to Justin Bryant:
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By Tax Dragon
24th Jul 2020 09:05

Does the case explain what a conditional gift is? If so, I'll read it more carefully.

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
24th Jul 2020 09:20

I am not wanting here to leap into a pc discussion about using the phrase, as its childhood use is certainly from a very different era from today, but this North American phrase, common during my childhood, somewhat springs to mind.

https://en.wikipedia.org/wiki/Indian_giver

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Replying to Tax Dragon:
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By Justin Bryant
24th Jul 2020 09:33

Why is a conditional gift improper (they are not uncommon and it is trite law that they are valid and legal etc.)?

[moderated post]

Regardless, if the gift back is unenforceable then it's a non-issue in any event.

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Replying to Justin Bryant:
Stepurhan
By stepurhan
24th Jul 2020 09:32

Justin Bryant wrote:

Why is a conditional gift improper (they are not uncommon and it is trite law that they are valid and legal etc.)? It's a waste of time discussing this with you anyway, as you have no legal/tax expertise.

You could use your own legal/tax expertise to explain why you think a conditional gift works. You have yet to explain how having a condition that someone returns the same property in its entirety does not mean that the "giver" retains an interest in said property. Well, apart from throwing out a link to a case with no explanation (see my response above about that). Why don't you try doing that?

Because otherwise you are just saying you are clearly right because you know you are right, which is not a very convincing argument.

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Replying to stepurhan:
Hallerud at Easter
By DJKL
24th Jul 2020 09:40

"First come I; my name is Jowett.
There's no knowledge but I know it.
I am master of this college:
What I don't know isn't knowledge."

https://en.wikipedia.org/wiki/Henry_Beeching

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Replying to Justin Bryant:
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By Tax Dragon
24th Jul 2020 09:41

I don't think retention of interest in the property is the main issue, though I agree with you that it could be an issue, depending what you mean by "conditional".

As I said before, I think that the main issue is that the gifts are linked and therefore that the making of one gift is consideration for the making of the other gift. Consideration triggers SDLT.

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By Paul Crowley
24th Jul 2020 10:09

The very first post remains valid.
Every tax avoidance scheme is claimed by councel's opinion to be valid which demonstrates clearly the value of legal opinion in tax avoidance schemes.
This is clearly a predetermined series of events to sole purpose of which is to evade tax.
Even low skilled accountants understand substance over form.

If only there were some general anti avoidance guidance available

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Replying to Paul Crowley:
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By Tax Dragon
24th Jul 2020 09:46

Trusts over land have to be documented to be enforceable. So in that regard I do agree with Justin.

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By Tax Dragon
24th Jul 2020 10:41

AccountantMart wrote:

This all seems too easy to get around the additional SDLT on second property.

Whatever you make of this discussion, I hope it has disavowed you of this weird notion. And whatever you make of the technical issues, DJKL's practical point about death of the recipient, or indeed the donor (her children might lose out), should not be ignored.

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By Tax Dragon
24th Jul 2020 16:26

AccountantMart wrote:

Is there legislation to avoid this?

Dammit I forgot your second punchline.

FA2003, Sch4, para5 applies where one or more land transactions are entered into by a person as purchaser (alone or jointly) wholly or partly in consideration of one or more other land transactions being entered into by her (alone or jointly) as vendor. A gift in consideration of a gift back would be within this paragraph. The effect is basically to treat the value of the property as consideration for SDLT.

You don't need money to change hands to get a tax bill.

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John Stokdyk, AccountingWEB head of insight
By John Stokdyk
24th Jul 2020 17:23

Following an outbreak of unpleasantness, we think it's best to close down comments on this thread.

Thanks for taking part and please remember not to make personal criticisms or abuse other members, which is against our community rules.

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