Kay Stewart discusses the Gifting of Property

Many people think that the best way to avoid taxes is to gift property to their children during their lifetime. However, there are more taxes to consider than just those after you die.

Inheritance Tax – IHT

It is true that gifts made during a lifetime do not attract inheritance tax. However, it is important to plan well in advance, as these gifts may end up forming part of the deceased’s death estate if sufficient time has not passed between the date of gift and the date of death.  These gifts are known as Potentially Exempt Transfers, or PETs, and the donor must survive for seven years after making the gift for it to have no tax consequences on their estate.

If they die within seven years, then the gift is included in the value of their estate, as the gift has ‘failed’. There is a ‘taper relief’ available if the death of the testator was more than 3 years after the gift itself, and this increases as the number of years between the date of gift and date of death increases.

Capital Gains Tax – CGT

If you gift an asset which has increased in value, you may still have to pay CGT on it. The gift, even if given away for free, is treated as being transferred at market value. For example, you have a house which was worth £200,000 when you bought it. It is now worth £300,000. Even if you give it away to your child for free, the gain of £100,000 is still charged to CGT. CGT is charged at 18% or 28% (depending on whether you are a standard or higher rate taxpayer) for residential property and 10% or 20% for all other assets, such as stocks and shares.

There are important exemptions: CGT is not due on your home of residence, and there is an annual exemption of £12,300 (for the current tax year). This can reduce the amount of CGT you have to pay, even down to nil.

Stamp Duty Land Tax – SDLT

The recipient does not pay SDLT on a gift of property if it was given away for free. However, if money, or ‘consideration’ does change hands, then SDLT may be applicable in line with the usual thresholds. ‘Consideration’ does not have to mean cash; if you add someone on to your mortgage then that may be chargeable to SDT, as they are in effect assuming the debt alongside you. Parents should therefore be very careful before adding names of children onto mortgage policies, not only because of the risk of default but also because of SDLT implications.

For further information on this topic or on any other legal area, please contact John Szepietowski or Kay Stewart at Audley Chaucer Solicitors on 01372 303444 or email admin@audleychaucer.com or visit our Linkedin page.

Alina Dewshi

July 2021

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