Can you re­verse the gift of a house?

The Daily Telegraph - Your Money - - MONEY -

In 2014 my par­ents gave me and my sib­lings their fam­ily home. They con­tin­ued to live there pay­ing rent for two years, but even­tu­ally found keep­ing up the pay­ments to be too much. They now want us to trans­fer the prop­erty back to them, but as prop­erty prices have gone up we are faced with a large cap­i­tal gains tax (CGT) bill. SUZANNE, VIA EMAIL

This is a classic ex­am­ple of how giv­ing away your main home can go wrong. By not stick­ing to the rules you could end up pay­ing hun­dreds of thou­sands of pounds in un­nec­es­sary tax. While it is un­der­stand­able that pen­sion­ers can strug­gle to keep up with rents on large houses, not pay­ing rent can be costly.

You can trans­fer the prop­erty back to your par­ents, but not with­out pay­ing tax on any gains in the prop­erty’s value since the gift. CGT is charged at 28pc on the gain, less the an­nual ex­empt amount of £11,700.

Even if they had con­tin­ued to live in the prop­erty and paid rent, you would have had to pay in­come tax on the money re­ceived. Be­cause they have stopped pay­ing rent, the gift will not have re­duced the value of their es­tate at all and IHT will still be due.

Fall­ing foul of the gift with reser­va­tion of ben­e­fit rules can cause far more pain than it is worth. Giv­ing away a sec­ondary prop­erty, cash or shares is a much safer and gen­er­ally more ef­fi­cient way to re­duce your IHT li­a­bil­ity.

To cut your CGT bill, Andy Butcher of fi­nan­cial plan­ner Ray­mond James sug­gested putting your and your sib­lings’ names, plus those of your re­spec­tive spouses, on the prop­erty, al­low­ing you to ag­gre­gate your CGT ex­emp­tions be­fore you make the trans­fer back to your par­ents.

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