I am considering buying my Mother's house which was left to me and my three sisters. I then intend to rent it to one of my sisters. I am a 40% tax payer but intend to put the property into my son's name. He pays basic rate of tax. What are the implications of doing this and how much tax would he have to pay?
Arthur Weller Replies:
There may be capital gains tax when you purchase the house from your sisters. Assuming you gift the house pretty soon afterwards to your son, there should be no capital gains tax on this transfer, because it should be worth about the same amount as when you acquired it. However, it will be a PET (Potentially Exempt Transfer) as far as inheritance tax is concerned, only chargeable if you die within seven years.
Assuming he is over 18 years old, he will pay basic rate income tax on the rental income, assuming his total income does not exceed the basic rate threshold. If he is under 18 and unmarried, and the annual rental income exceeds £100 per year, then for these purposes it will be deemed to be your income, on which you will pay 40% tax.