Private pensions and tax bands - Impact of property value?

[Dave200]

Hi folks

The parents' generation are at the stage of trying to protect and maximise the value of their estate, but I'm struggling to give them much advice with a specific issue. One older member of the family who is living a valuable property wants to transfer it in name to another, who is currently drawing from a final salary pension. The .Gov.Uk website is a bit unclear as to the impact of property ownership on the recipient's tax banding (and thus, pension income). The website suggests that property income (i.e. rent) is naturally subject to taxation, but this will just be simple ownership/asset and I can't be sure whether this will impact pensionable income.

Before I go down the road of CAB et al, I would be hugely grateful if anyone can shine any light on the above.

Thanks in advance.

[PurpleMoonlight]

Ownership in isolation does not affect the income tax liability.

Rental income is assessable for income tax so would if there were any.

You need to be careful about a 'gift with reservation' if the current owner will continue to live in the house they are giving to someone else. Seek legal advice.

[Dave200]

PurpleMoonlight said:

Ownership in isolation does not affect the income tax liability.

Rental income is assessable for income tax so would if there were any.

You need to be careful about a 'gift with reservation' if the current owner will continue to live in the house they are giving to someone else. Seek legal advice.

Thanks so much. The current owner will continue to live at the house (the two in question are brothers), so I'll take some advice on the 'gift with reservation'.

[Ozzie Osmond]

Dave200 said:

The current owner will continue to live at the house (the two in question are brothers), so I'll take some advice on the 'gift with reservation'.

Unless the former owner who's still living there pays a market rent to the new owner then the former owner will be treated as still owning the property for the purposes of Inheritance Tax.

The way to get around this is,

• House owner (donor) sells house
• House owner (donor) gives the proceeds of sale in cash to someone else
• That someone else buys a house (not the same one!) and allows the donor to live there rent free.

[PurpleMoonlight]

Ozzie Osmond said:

Unless the former owner who's still living there pays a market rent to the new owner then the former owner will be treated as still owning the property for the purposes of Inheritance Tax.

The way to get around this is,

• House owner (donor) sells house
• House owner (donor) gives the proceeds of sale in cash to someone else
• That someone else buys a house (not the same one!) and allows the donor to live there rent free.

Has that been proved to work?

[Ozzie Osmond]

PurpleMoonlight said:

Has that been proved to work?

I think you are right to raise that query on what I posted. I've checked again and there may still be an IHT problem if the donor moves rent-free into the house within 7 years of the cash gift.

As someone posted earlier in this thread, expert professional advice should be sought.

[uknick]

And, don't forget possible CGT liability if the new owner doesn't make the house their main residence.