ChatterBank2 mins ago
Selling Property
14 Answers
Can anybody give me advice,
We own two small cottages worth about �110,000 each
can we legally sell them cheaply to our sons say for �70,000 each to help them get on the property ladder, or would it be looked into as a possible tax avoidance ?
any advice will be appreciated,thanks
We own two small cottages worth about �110,000 each
can we legally sell them cheaply to our sons say for �70,000 each to help them get on the property ladder, or would it be looked into as a possible tax avoidance ?
any advice will be appreciated,thanks
Answers
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For more on marking an answer as the "Best Answer", please visit our FAQ.Ray, am not an Inheritance tax expert but I suspect that if you or your wife died within 7 years they would be subject to Inheritance Tax although I believe there's a sliding scale of reduction over this period. Nobody likes having to pay legal fees for advice but I suspect you might be wise to consult one, unless you can Google "Selling property cheaply to avoid Inheritance Tax" or something similar and come up with an answer that way. Frankly I'm all for avoiding paying Inheritance Tax if possible. We pay enough in our lifetime without paying again when we die.
Thanks you two, we aren't trying to avoid any tax,we are only in our fifties but our two sons cannot afford to buy,so we thought well we own two little cottages we bought as a pension, but we would love to give them one each,but I am self employed,so can't afford to do that, but you have both raised good points,we will have to talk to someone, and as naz says,if they fetched a low amount at auction nothing would be said, thanks again, Ray
There's no problem at all with selling the properties below their market value. (It's your property and you're free to do what you like with it).
However, if you die within 7 years, the tax man will treat each sale as if you sold the property for �110,000 and then gave �40,000 back as a gift. i.e. you'll have given a total of �80,000 in gifts.
You're allowed to make gifts of �3000 each year without this counting for tax purposes. Additionally, you can carry forward an unused allowance from the previous year. So, assuming that you you don't make any other gifts in the two relevant years, the tax man will disregard �6000 and treat the sale of the properties as including gifts, from you, of �74,000.
When the total value of your estate is calculated, all of the usual things will be added together and then an additional �74,000 will be added on top. Inheritance tax will then be charged at 40% on the amount by which the total value of the estate exceeds the threshold (which is currently �285.000). If the value of the estate was already above �285,000 before the gifts were added in, that would mean that the inheritance tax would rise by 40% of �74,000 (= �29,600).
Remember, though, that the starting figure for calculating your estate would start �220,000 lower, because you no longer owned the cottages, so things wouldn't be quite as bad as the previous paragraph might indicate.
Remember, as well, that those gifts of �74,000 only count if you die within 7 years. After that time, they're completely disregarded.
Chris
However, if you die within 7 years, the tax man will treat each sale as if you sold the property for �110,000 and then gave �40,000 back as a gift. i.e. you'll have given a total of �80,000 in gifts.
You're allowed to make gifts of �3000 each year without this counting for tax purposes. Additionally, you can carry forward an unused allowance from the previous year. So, assuming that you you don't make any other gifts in the two relevant years, the tax man will disregard �6000 and treat the sale of the properties as including gifts, from you, of �74,000.
When the total value of your estate is calculated, all of the usual things will be added together and then an additional �74,000 will be added on top. Inheritance tax will then be charged at 40% on the amount by which the total value of the estate exceeds the threshold (which is currently �285.000). If the value of the estate was already above �285,000 before the gifts were added in, that would mean that the inheritance tax would rise by 40% of �74,000 (= �29,600).
Remember, though, that the starting figure for calculating your estate would start �220,000 lower, because you no longer owned the cottages, so things wouldn't be quite as bad as the previous paragraph might indicate.
Remember, as well, that those gifts of �74,000 only count if you die within 7 years. After that time, they're completely disregarded.
Chris
Well I don't know ... what about stamp duty (my parents tried this when they wanted to do a straight swap with another couple and there was a difference in price and they thought why don't we just knock 50k off both properties and save stamp duty and when they called the Stamp Duty office they said that any property sold well below market value would be looked into ....) so not sure whether that would come into it .
"There's no problem at all with selling the properties below their market value. (It's your property and you're free to do what you like with it)."
As lady_p_gold says any attempt to sell a property for much less that "markey value" could be investigated for Stamp Duty avoidence, however given the properties you mention would be under the current stamp duty level of �125,000 that won't be a problem.
I'd speak to a solicitor to make sure you are covered.
As lady_p_gold says any attempt to sell a property for much less that "markey value" could be investigated for Stamp Duty avoidence, however given the properties you mention would be under the current stamp duty level of �125,000 that won't be a problem.
I'd speak to a solicitor to make sure you are covered.
You need a solicitor to really make the transfer anyway, so they will sort the stamp duty question, also get a proper will drawn up to avoid problems in the future.
a few hundred quid for a proper will is worth it- ( I am not a solicitor) . don't mess with forms from Smiths if you have property and money to pass on
a few hundred quid for a proper will is worth it- ( I am not a solicitor) . don't mess with forms from Smiths if you have property and money to pass on