Transferring Property Tax Efficiently Using Trusts
Ensure you get the right tax advice ...
POSTED BY HELEN BEAUMONT ON 01/05/2019 @ 8:00AM
If you own property that you don't live in, then Capital Gains Tax will be due if ownership is transferred to your children. Is there any way around this charge? Yes, a trust ...
If you're considering setting up a trust for your children then do get the right tax advice!
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Many parents are buying property for their children. They buy it themselves then the child rents it from them which, in today's economic world, is a great way to help the kids. But this property is classed as 'Buy-To-Let' by HMRC as the parent doesn't live in it themselves.
"If the parent eventually wants to transfer ownership to the child, then CGT becomes due!"
This is because HMRC deems that the market value of the property was received by the parent, even if the property was given away for free. CGT will be based on market value, less purchase price, less capitalised refurbishment costs.
The rate of Capital Gains Tax to be paid on Buy-To-Let properties is 18% for basic rate taxpayers and 28% for high rate taxpayers, after taking out their £12,000 (2019/20) CGT annual allowance.
"One way to avoid CGT is to use a trust!"
Trustees of a trust hold the property for the benefit of someone else (the beneficiaries). A parent may consider a trust rather than making an outright gift to a child because of the risk of doing that.
Typically, these risks would include a possibility of divorce or if the child has unstable finances and may consider remortgaging the property. A trust gives the parents confidence the child will have a roof over their head in perpetuity.
There are usually two types of trust that work here. A 'flexible power of appointment interest in possession trust' or a 'fully discretionary trust'.
Trusts can also be very useful if you want to transfer a Buy-To-Let property, which you have already made a substantial gain on, to a child. There are Capital Gains Tax reliefs that are available when assets are transferred in and out of trusts, which means that properties can be transferred to a child, but the capital gains tax-deferred until they sell the property.
The legal and taxation aspects of trusts are complex. The decision to use a trust, and which type of trust, is not straightforward and is dependent on the circumstances of both the parents and the children so it is essential you get the right tax advice to minimise any Capital Gains Tax and Inheritance Tax due.
"Would you like to know more?"
If you'd like to find out more about transferring property into a trust then do give me a call on 01908 774323 or click here to ping me an email and let's see how I can help you.
Until next time ...
If you're looking to work with an expert tax advisor with a wide range of tax experience, do visit www.essendontax.co.uk to find out more about me and discover how I can help!
More about Helen Beaumont ...
Helen brings the personal tax planning experience of the top 20 tax companies to Essendon. Formerly of MacIntyre Hudson (with 45 offices nationwide), Helen worked at Chancery for more than 10 years before joining Essendon as the personal tax specialist.
Tax Planning can make a considerable difference to your tax liability. Helen’s specialist knowledge in tax planning and experience ensures every opportunity to minimise your tax bill is utilised. By analysing your investments, income, profit and expenditures, Helen will provide strategic tax planning expertise that could offer significant savings, whilst delivering clear, honest advice and guidance.
When Helen is not at Essendon she spends time with her young son and likes going on long walks with the family dog.
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