Tuesday, 11 January 2011

Am I taxed on parents' home deposit gift? | This is Money

Am I taxed on parents' home deposit gift?

Ask an Expert, answer compiled by Linda McKay
10 January 2011

My parents have promised to give me some money for a deposit on a house as they made a considerable sum from the sale of their property when they downsized.

Skip additional links

A first-time buyer on the property ladder
Getting on the ladder: But will you pay tax on a gifted deposit?

WANT TO KNOW MORE?

ASK A QUESTION...

Expert

If you're confused by your finances and think the answer maybe of interest to a wider audience, ask our panel of experts:

Ask a question

This amount is likely to be in the region of £10,000-15,000. My salary is on the threshold of the upper tax bracket.

Am I likely to be taxed on this cash gift and, if so, is there a way to avoid this? AG, London

Matthew Cox of Skipton Financial Services replies: As far as income tax is concerned, you will not be taxed on the £10,000-£15,000 gift itself but would be taxed if the gift gained interest in a bank or building society account, prior to it being used to buy your house.

For you to avoid this, I would advise your parents to keep the money they have earmarked for you in their bank account until you need it, rather than giving it to you now when you may not buy a property for months, therefore generating interest.

While your question relates to income tax, there are two other tax issues I must bring to your attention.

Firstly, Inheritance Tax (IHT) ¬– your parents need to be aware that their gift to you would be classed as a potentially exempt transfer.

If your parents live for seven years after making this gift to you, there will be no IHT payable on the gift.

Secondly, Capital Gains Tax (CGT) – providing this property will be your main residence then there will be no CGT implications. If it is not going to be your main residence, then there may be CGT implications on disposal.

I hope this helps explain the situation but CGT and IHT are complex issues and I would always suggest discussing CGT and IHT with a financial adviser.

Buying or selling a home? We can save you money

Pound coin with house cut out of it • Find the best mortgage for you
• Find a solicitor for your conveyancing
• Find a better home insurance deal
• Find the best equity release option
• Guides: Buying, selling and mortgage advice
• Mortgage calculator (rates and fees)
• What next for house prices?
• What next for mortgage rates?

WANT TO KNOW MORE?

ARCHIVE


READER COMMENTS


Comments so far (4)

1. Brink of higher tax rate and you need help for a deposit.

Oh dear oh dear..... Are you sure you are ready for a house....

- Not, Supplied Posted: 10 January 2011, 8:26pm

2. I think I am right in saying that each person can make cash gifts to the value of £3000 each year without any tax implications. Also, this allowance can be backdated to the previous tax year if no gifts were made in that year.
Based on this premise, the parents would each be able to give their son up to £6000 without any tax implications. Anything above this amount would come under the potentially exempt transfer rule related to IHT and would be totally exempt if the parents survived for 7 years.
The issue about tax on the interest is not necessarily as straight forward as the article suggests. The tax status of the parents could mean that they would also pay tax on any interest generated and if they are higher rate tax payers then there would be nothing to gain from them keeping the money until the last minute.

- Mike, Bromsgrove Posted: 11 January 2011, 1:15am

3. The parents could be a 'second mortgagor' and hand over the money that way. This would mean (after the appropriate documents had been drawn up, signed etc - solicitor to advise) they would have a stake in the house but the offspring would have a house to live in, with no tax to pay.

- Clint Backhouse, Carlisle Posted: 11 January 2011, 4:45pm

4. my parents own a secound property and they have offered to sell it to me and my wife for half its market value, so we can get on the property ladder, it sounds good to me but would we or they be liable to pay any inheritance tax on it, or could they get caught with selling a secound home on the cheap, technically avoiding tax ?

- John Mc Bride, uk Posted: 11 January 2011, 7:27pm



Ads By Google

Annuity CalculatorIncrease your Retirement IncomeCompare Rates & Get Up to 40% Morewww.Compare-Annuity.com/Calculator
Constant WitnessStop dental litigation now!100% Failsafe proof, at last.www.constantwitness.co.uk
Non Resident Tax in Spain31 st Dec - missed the deadline?Don’t put your assets at risk.www.abacoconnect.com
via thisismoney.co.uk

Lots of great questions.

Posted by at

No comments:

Post a Comment

Subscribe to: Post Comments (Atom)