Can you reverse the gift of a house?
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.