Your local accountant – How to pass property to your children and pay less tax

18th January 2015

Your local accountant – How to pass property to your children and pay less tax

Alexander’s & Co Chartered Accountants, 24A Aldermans Hill, Palmers Green, London N13 4PN

Tel: 020 8882 6611 Fax: 020 8882 6621

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 Alex loves business and gives regular presentations to those wanting to learn about the accountancy and tax part of running their own business. He helps break down the barriers that people face in running their own business and how to maximise their earnings. The biggest enjoyment that Alex gets from his role as an accountant is to work with people from all walks of life and most importantly helping them with their money. Alex’s specialism is in dealing with tax issues relating to properties, where he regularly advises clients with a property portfolio as small as one buy-to-let property to large commercial and residential property developers.


I am reaching retirement age and have a few properties earning me rental income. I am conscious of my inheritance tax position and want to make sure that my children receive the properties and we pay as little tax as possible. Can you advise on our position?


The issue I would need to establish from the onset is whether you rely on the rental income from the properties to help you during your retirement. If so, then you won’t be able to pass the properties to your children and retain the benefits (i.e. the rent) from the properties. If you plan to gift your residential property to your children and continue to live in it, rent free, this won’t fall out of your estate for inheritance tax purposes, as it will be seen as a ‘gift with reservation of benefit’ – although it won’t attract any capital gains tax, regardless of the method of transfer.

If you decide to gift any of your properties to your children you will have to wait seven years until the gift falls out of your estate (although the value of the gift does fall over time, reducing your potential inheritance tax bill).

There is also the issue of capital gains tax to consider in gifting the investment properties. Regardless of the money which exchanges with the

transfer, the deemed transfer is taken as the market value of the property at the date of exchange. Capital gains tax is calculated as the market value of the property, less the purchase price (and any other allowable capital expenses) with the balance chargeable for capital gains tax at 28%.

There are instances in which your capital gains tax bill can be reduced. The main one being is if you have ever lived in the property you are disposing. If so, then the last 18 months will be free of capital gains tax. In addition, you are entitled to a relief known as lettings relief, which could result in up to an additional £40,000 relief from capital gains tax. This could be doubled if the property is owned by husband and wife.

There are various other tax planning opportunities available and the potential options are always tailored to each individual situation. The aim is always to look at the long term goal of the individual and to build a plan to help manage their affairs in a tax efficient manner.

If you have an accounting question for Alex please e-mail him directly he will be happy to assist you, alternatively Alexander’s & Co offer an initial free consultation please contact them to find out more.

Disclaimer: The information provided in this article should not be construed as legal advice and the information is offered for information purposes only. You should always seek advice from an appropriately qualified accountant on any specific accountancy enquiry.