My parents are gifting me their home. Just want to know what taxes they have to pay and what will be my tax responsibilities.
One of our clients in his 40s approached us who is about to become the owner of his parents' house in which he was living with them since his childhood. He was a bit confused as he had been hearing about lots of taxes involved while dealing with the properties. In the following blog we will be talking about the taxes which are generally involved with the properties and gifts and whether a person in the situation same as above will have to pay those taxes.
Capital Gains Tax
Capital Gains tax is a tax which is paid on the disposals or transfers of the assets. Capital Gains Tax is not paid on the disposal of the property which is your main home. For the property to qualify as your main home you need to be living in that house for as long as you have owned it, You must have never rented it and It's not used as your office (It can get tricky if you are self-employed and your registered office address is same as your main residence). This is called private residence relief. Since in this situation the individual is living with his parents in the same house since childhood and the above criteria is met no CGT liability will arise as a result of the transfer of the property.
However, it would be a good idea get the valuation of the property done at the time it is gifted to you.
Stamp Duty Land Tax
Stamp duty land tax is not paid on the property that is gifted to you. However, there is an exception. If the property that is gifted to you has an outstanding mortgage, SDLT will have to be paid if the value of the mortgage is above the value of SDLT threshold. SDLT will also need to be paid if the property was gifted by the parents to the siblings and one of the siblings wants to buy the share from the other siblings. In such cases HMRC needs to be informed as you might have to pay SDLT in this situation.
Inheritance Tax
No inheritable tax needs to be paid if the parents gifted the property during their lifetime and continued to live for 7 years. If they die within 7 years of making the transfer inheritance tax will need to be paid according to the 7 year rule.
Paying Rent
In this situation when the person to whom the property is transferred is also living in the property and after gifting the property the parents continue to live with you they don't have to pay any rent to you.
However, in situations when after giving the gift the parents continue to live in the same house and you live somewhere else the parents will have to rent and their share of bills.
So in conclusion in the above situation not much taxes are involved and it's a pretty much straightforward transfer. However, there are different taxes which you need to pay if you plan to move out of the property, sell it or rent it. If you need assistance with any sort of advice on taxes you can consult Taxaccolega and our expert team will be happy to help you. You can visit us in our Croydon and South hall branches or call us at 020 8127 0728.