Passing on a second home

[InTheHighlands]

I have had a second home for 20 years - it's value has increased from the purchase price of about £50k to around £200k - partly due to the general increase in house prices and partly due to the upgrading I have down - which I've done myself, so no helpful bills from contractors.

I'd like to pass this to my kids in a few years time, when they are 18 (or, maybe, 16 as we live in Scotland).

If I simply gift them the house, there would be CGT to pay on the £150k gain.

If we were talking about shares, I would be able to gift a suitable number of shares each year to keep my capital gain within my CGT allowance.

Does anyone know if I would be able to gift the property in stages - eg, maybe 5% of the property pa? And what the tax implications would be.

Thanks in advance!

[helfordpirate]

This is perfectly possible though you will obviously need help from a solicitor and it may be administratively expensive to do it in such small tranches. You do need to make sure the transactions stand independently i.e. you are not committed to gift the whole property in a schedule of tranches.

(It would be worth looking more carefully at the "upgrading" - it needs to classify as "improvement" of capital value of the property rather than maintenance or "like for like" (e.g.new kithen). So if you have remodelled walls/layout or built an extension it might be worth looking harder for how you could justify the expenses.)

Other options might be to consider gifting the property into a trust and claim holdover relief. The chargeable transfer would be below the IHT level and, though not a PET, would fall out of your IHT estates calculation after 7 years. CGT would become payable only when the trust or chldren sold it There is however a administrative burden in setup and maintenance.

Other things to consider...
- SDLT (I am thinking from an English perspective here so might be different in Scotland) Provided you have no mortgage there should be no SDLT payable on the transactions. However, your children will now have a part share in a property and if they eventually buy their own homes will face the 3% second home surcharge.
- IHT. You need to consider if you will fall foul of Gift with Reservation rules e.g. if you continue to use the property and benefit from their share of the property.

[PinkDalek]

In addition, is there a spouse or civil partner involved, to make use of an additional annual exempt amount and, perhaps, a lower rate of CGT if only one will be "a higher or additional rate taxpayer":

https://www.gov.uk/capital-gains-tax/gifts
https://www.gov.uk/capital-gains-tax/rates