Selling 2nd property to buy another

[tonytonytony]

I own two properties - one in Newport and one in London. The property in London is and has always been occupied by my father who made a gift of the property to me in 1996 ( we thought we were cleverly avoiding IHT ;) ). The Newport property is my main residence and at no time did I charge my father any rent for living in the London property.

I intend to sell the property in London for £150,000 and purchase one of similar value for him a lot closer to home.

My questions are:

1. What CGT liabilities might I have upon sale of the London property, and is this affected at all by the fact I will be purchasing another?

2. Did I or my father unwittingly incur any POAT or other tax liability in allowing him to live in the property rent free from 96 to 2005?

3. Should I purchase the new property in my own name? I already own a property which puts me above the IHT threshold. Other options, which I have varying feelings about are: in my father's name - he has no estate to speak of; in my partner's name; in one or all of my childrens' name; other - possibly by means of a trust of some kind.

4. What are the various tax implications of the options in (3), both now and at time of later sale of the property upon my father's demise.

Cheers.

Tony

[Tax Accountant]

I own two properties - one in Newport and one in London. The property in London is and has always been occupied by my father who made a gift of the property to me in 1996 ( we thought we were cleverly avoiding IHT ;) ). The Newport property is my main residence and at no time did I charge my father any rent for living in the London property.

I intend to sell the property in London for £150,000 and purchase one of similar value for him a lot closer to home.

Cheers.

Tony

QUESTIONS AND REPLIES ARE:

Q1. What CGT liabilities might I have upon sale of the London property, and is this affected at all by the fact I will be purchasing another?

A1: Not affected by buying another. Tax depends on the value at the date of transfer to you in 1996. This is effectively your purchase price. You will have small indexation allowance upto April 1998, non-business asset taper relief of 30% of the gain, annual exemption of £8,500. CGT at the rate applicable to the tax band it falls into as the highest slice of your income and gains in the year of disposal.

Q2. Did I or my father unwittingly incur any POAT or other tax liability in allowing him to live in the property rent free from 96 to 2005?

A2: POAT came into effect only from April 2005. But this doesn't apply to him in any case, as he has occupied the property since gifting it to you, meaning the gift has been in-effective for IHT. Your attempt to avoid IHT has been futile.

Q3: Should I purchase the new property in my own name? I already own a property which puts me above the IHT threshold. Other options, which I have varying feelings about are: in my father's name - he has no estate to speak of; in my partner's name; in one or all of my childrens' name; other - possibly by means of a trust of some kind.

A3: If your father has no assets to speak of, what is all this talk of having transferred to you in the first place to avoid IHT? Your father is allowed to leave estate worth £275,000 IHT-free when he dies. This figure is scheduled to increase to £300,000 over the next couple of years. It seems transferring back to your father is the best course of action. He can then leave it in his will as it suits him. An old person's home ( especially if it is his only asset) is always best left in his ownership and control. What will he do if you gambled away his home?

Having the property in his ownership may have implications for care home fees if he has to go into a care home. Look into this properly before transferring the property back to him.

Q4: What are the various tax implications of the options in (3), both now and at time of later sale of the property upon my father's demise.

A4: I have answered this above.

Finally, did your father really transfer the property ownership to you in 1996? Is it possible that he was merely transferring the title deeds (legal ownership) to you for safe-keeping but he always intended to retain the beneficial ownership at all times? If so, the property has always been deemed to have remained your father's for tax purposes and you will be deemed to have held it as a trustee. Take professional advice.

Ramnik

[johnj]

The trust route brings the prospect of avoiding a cgt charge on disposal of the property and any replacement property. Take advice.

[Tax Accountant]

Quote from an earlier reply by Karongo:

''Finally, did your father really transfer the property ownership to you in 1996? Is it possible that he was merely transferring the title deeds (legal ownership) to you for safe-keeping but he always intended to retain the beneficial ownership at all times? If so, the property has always been deemed to have remained your father's for tax purposes and you will be deemed to have held it as a trustee. Take professional advice.''

Ramnik