Hi I am retired and thinking of putting one of my 4 houses (no mortgage) in trust for my 18 year old son who hopefully will be going off to uni this year. He could have the rent every month for his fees etc and this would also lower my income, as I do not want to go over the 50K mark. Is this a good idea? If not please tell me why.
Thank You
Why put it in trust - why not just give it to him? Much simpler!
Bear in mind you will have to pay CGT (if appropriate) &your son will lose his FTBer status & have to pay the 3% extra SDLT on any future purchase if he doesnāt sell this one, but overall I think this is a good idea if you donāt need to keep it.
I am thinking of doing something similar. I have 2 BTL properties that are both mortgaged so they canāt be giftedā¦ They are both currently making a small income. I am thinking of using some of the income to help my daughter to buy her own property by making her a joint owner in the BTLs. This way, I can keep some control and we can both benefit from the rental income and she will automatically become the sole owner when I eventually pass on. I am still researching this strategy but so far I not found any disadvantages tax wise.
I am selling a place and just giving the money to daughter to buy a place
We are selling the place and using some of the money to pay off sonās mortgage.
What are we doing this for if not to help our children?
If I sell it and give it to them I will have to pay CGT but if I put it in trust he can have the income and saves me giving him money and he can inherit when I die is that not correct?
I would be very wary of trusts! The law keeps changing & there is often tax to pay. Take proper advice if you intend to do this orā¦
Sell it, take the CGT hit, give him the money now, survive 7 years and no IHT.
You cannot avoid taxes!
I agree with Tricia. Keep it as Individual ownership - the CGT due on the sale would then be at 18% - as opposed to 28% by the Trust (effectively still āyouā). As an individual, youāre entitled to the CGT Annual Exemption Allowance each year if you sell it. Y/E 4/23 it was Ā£12300, this year it was reduced to Ā£6K, YE 4/25 it reduces to only Ā£3K ā¦ BUT, a Trust only gets 50% of that allowance! And If the trust has 2 props, it only gets 25% of it. I had my fingers burnt when I gifted 2 properties into Trust (reliant on the Trust Co. Financial Advisor actually ADVISING me correctly. He didnāt! Itās not simple, straightforward OR necessarily a better option financially. Iāve also had to pay for legal Trust solicitor and Trust accountantās advice since. Thereās also an annual tax return to complete (SA900) which costs for a software Co. to declare it on your behalf - even if NIL returns - OR get HMRC to waive submission if no activity in any year.
If the market value of the props. totals more than the Nil Rate Band (currently Ā£325K), thereās a potential liability to IHT on entry INTO Trust. I know you said your son would get the rent -whoād pay for rental expenses/maintenance? My set up was different in that I receive the rent. Depending on type of Trust - mineās an IIP [Interest in Possession Trust].- whereby I receive the Revenue (Rent) but my Beneficiaries are entitled to the Capital on any sale/distributionā¦ The ābiggieā for me - to my shock! - and defeated the whole point of setting up the trust in my circs., when I eventually established this! [I donāt have a spouse or dependants] - was that, because the rent is deemed as a benefit - i.e. Iād gifted the properties but still ābenefittedā in some way, itās deemed as a GWROB - Gift With Reservation of Benefit, meaning that I, for IHT purposes, as the Settlor, am STILL liable for the assets within the Trust, IN ADDITION TO the value of my own estate, should I die! Iād set it up believing that the Trust was a separate legal entity which had its own NRB - the GWR element defeats the object here! Also, having, since, sold one of the 2 properties and distributed the value to the beneficiaries, the GWR element still exists since the Trust bank account is an Interest-bearing account (even though thereās no interest in it).
As a result, Iām seeking to sell the 2nd prop. asap but have waivered because I donāt want to turf my tenant out before theyāve saved enough for a mortgage. I have to live at least 7 years after I eventually dispose of all trust assets; disposal subjects me to a PET (potential exempt transaction). IF I died within that period, the % IHT due could be tiered, as opposed to the full 40%. Iāve had to spend hours even trying to understand the principles and HMRCās terminology. Still not happy I DO understand it!
Both my properties were still mortgaged in my name - when they were gifted into the Trust. The Trust Co. automatcially entered them at the market value, despite the equity being only 70% of that. The Trust Co. has since gone to the wall!
Forgot to add, depending on type of trust, there could also be a 10 year anniversary Return due for IHT purposes.- taking into account the increase in value of the prop. over that period - you could potentially be subject to between 0 - 6% IHT at that pointā¦
I think that the individual CGT rate begins at 18%, but once the personal allowance is exceeded, the balance is at 28%.
Thank you your advice . I am going to look into it a LOT more.
Cgt is 18% for basic rate taxpayers, 28% for higher rate tax payers (including the amount that the gain takes you over the higher rate threshold) . Personal allowance has no relevance for capital gains tax, it is for income tax only.
Putting it in trust is a disposal for cgt so i dont see that as a benefit as tax would be due anyway.
Dependent on amounts you could potentially gift to you son in stages to utilise cgt allowance each year (double allowance if jointly owned), ie gift 10% each tax year or how ever much to utilise allowance. Would probably be a lot of paperwork and with reduced cgt allowance questionable whether its worth hassle but is an option.
Hi David/(Steve14) Yes, youāre right. Iām sorry, I didnāt distinguish between BR and HR taxpayers! [Iām only a BR taxpayer (:)]
For individuals:
If youāre a basic rate taxpayer, the rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets.
For Trustees
From 6 April 2016 trusteesā gains are taxed at 28% on residential property or 20% on other chargeable assets. If a vulnerable beneficiary claim is made, the trustees are taxed on the amount that would be paid if the gains were taxed on the vulnerable beneficiary directly. The beneficiary may pay a lower rate of CGT. Read the Capital Gains Tax summary notes for a description of the CGT rates that apply to individuals. A claim to use the special treatment for vulnerable beneficiaries for a tax year requires an irrevocable election to be made for this treatment.
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