IHT: gifting investment prop to child/company

A PET to child who then sells to her company

Didn't find your answer?

I want to gift an investment property to my daughter who is a higher rate taxpayer

She doesn't want to own personally as it rent will be eaten up in tax, so she wants it inside her limited company

Have been advised if I gift directly to her company, I will be liable for a 20% lifetime IHT charge

So I should gift to her and she can then sell to her own company

Questions:

1) Is this advice correct/standard practice?

2) If so, do we submit to two apps to HMLR to prove twice transfer of ownership? i.e. Me>Child and Child>Company

3) Does the 20% lifetime charge also apply to a main residence as I want to gift that to my son soon as well

Thanks in advance! 

 

Replies (8)

Please login or register to join the discussion.

avatar
By paul.benny
10th Jun 2024 12:19

It's rarely wise to own investment property inside a company. Although there may be some short term tax benefit, income is taxed in the company and again when withdrawn.

If you gift to daughter and she then sells to company, that's two lots of SDLT. And there may well be CGT in play for you.

Where will company get the money from to buy property from daughter?

If you're planning a scheme like this, I would recommend paying for proper advice. And that should start with the actual objective - which here appears to be how you pass assets down the generations in a tax-efficient manner.

Thanks (0)
Replying to paul.benny:
By Ruddles
10th Jun 2024 14:44

paul.benny wrote:

If you gift to daughter and she then sells to company, that's two lots of SDLT. And there may well be CGT in play for you.


If the first transfer is a gift, why two lots of SDLT? (I'm not saying that there wouldn't be but there is nothing in the question to suggest that there would)

I reckon that the same CGT issues would be in play in either scenario.

Thanks (0)
avatar
By Tax Dragon
10th Jun 2024 13:08

Agree with Paul [edit - and Jane] - and would add that proper advice includes legal (vis-à-vis your Will) as well as tax. Perhaps have a chat with a TEP (maybe one practising within a law firm).

Thanks (1)
avatar
By Jane Wanless
10th Jun 2024 13:10

I see you've only joined today - did you read the feature "How to use any answers"?, as it's not aimed at providing advice to the public, but as a discussion forum for accountants. The "How to use" features the advice: “If you intend to plan a course of action based on what you read in here, you should instead be taking professional advice.”

The reason for taking professional advice is to ensure that your full circumstances are taken into account, and the advice is appropriate for you. It also protects you as responders may not have the relevant experience to answer your query, so you could end up with unnecessary tax bills - or worse!

My own initial reaction is "why are you thinking of these gifts?" What other assets do you have and would it be more appropriate to gift them? Would action other than gifts better meet your aims? Without understanding you aims, who knows? Are gifts to your children sensible - what are the states of their marriages/tax/financial positions? Will a gift to them end up with their spouse/creditors?

For these and many other reasons, you shouldn't seek advice on an internet forum, but please, go and seek proper professional advice.

Thanks (2)
avatar
By Paul Crowley
10th Jun 2024 15:33

Is this really IHT planning or 'estate planning'?
Gifts with reservation of benefit come to mind with main residence.

Best to look at the entire estate and make credible planning accordingly.

Thanks (0)
avatar
By Tax Dragon
10th Jun 2024 17:22

Now that you have been advised to take advice (and not to rely on this - or indeed any - public forum) I can address your questions.

1. There isn't really a "standard practice" because what a well-advised person in your situation does is take bespoke, personal advice. The great thing about bespoke, personal advice is that it takes account of the factors specific to the advisee. As these differ from advisee to advisee, so too does the advice and the practice.

IHT on lifetime gifts is the liability of the donee. If donor pays donee's liability, that's another gift and could itself be liable to IHT. Substitute 25% for your 20% and you'll see the effect.

2. Your daughter should take her own advice. Not from the TEP I suggest you contact. Does she not have an accountant for her company?

3. There is no IHT equivalent of the CGT OMR relief. [*]

Fwiw, rereading your post for the purpose of writing this one caused me to think, even more than I did before, that you [and your heirs] would benefit from [your] taking good quality paid-for advice.

[*] The whole capital taxes regime is overdue a massive overhaul and update, but with all the major parties entering the "no change" competition, it's going to have to carry on being overdue an overhaul.

Thanks (1)
Replying to Tax Dragon:
avatar
By FactChecker
10th Jun 2024 18:27

It's a fool that comments on political impacts (especially before which party and with what majority is known), but not being the shy retiring type this fool suggests:

... given the 'pledge' by the likely winners to 'triple lock taxes', which turns out to mean some undefined degree of not tampering specifically with IT or NICs or VAT, it suggests that logically all the required additional taxes will come from other taxes.
Step forward CGT, IHT and anything else that can be portrayed as mostly hitting the wealthier sections of society ... so CGT may indeed be in the vanguard of changes?

Thanks (2)
Replying to FactChecker:
avatar
By Paul Crowley
10th Jun 2024 19:18

Lib Dems want CGT at Income tax rates, all three of them
Apparently the lower rates of tax are CGT loopholes.

I am always amazed at the Billions in tax that all parties will raise from closing loopholes and dealing with tax avoidance.
They live in a fantasy world
A billion on Enquiry work, both random and targeted should raise 50Billion and all this avoidance issue and tax gap can be forgotten.
HMRC stated a cost of 1.3 Billion for businesses as a set up cost for MTD.

Thanks (1)