When it comes to passing on your property to the next generation, there are several options to consider. One popular choice is to gift the property to your children, but this can come with a hefty price tag in the form of capital gains tax (CGT). However, there is a way to avoid paying CGT when gifting property to your children, and that is by placing the property in a trust.
CGT is a tax that is levied on the profit made from the sale of an asset, such as a property. When you gift a property to your children, you are essentially transferring the ownership of the property to them, which can trigger a CGT liability. However, if you place the property in a trust, you can avoid paying CGT.
A trust is a legal arrangement where you transfer ownership of the property to a third party, known as the trustee, who holds the property on behalf of your children. The trustee is responsible for managing the property and making decisions about its sale or rental.
There are several benefits to placing your property in a trust, including:
• Avoidance of CGT: By placing your property in a trust, you can avoid paying CGT on the transfer of the property to your children.
• Protection of assets: A trust can provide protection for your assets in the event of a divorce or bankruptcy.
• Flexibility: A trust can be set up to allow your children to take control of the property at a later date, or to allow them to sell the property and use the proceeds for their own purposes.
It’s worth noting that there are some potential drawbacks to placing your property in a trust, including the potential for increased administrative costs and the need to obtain the consent of all beneficiaries before making decisions about the property.
So, how do you set up a trust to gift property to your children without paying CGT? The process is relatively straightforward, and involves the following steps:
• Identify the beneficiaries: You will need to identify the beneficiaries of the trust, which will typically be your children.
• Choose a trustee: You will need to choose a trustee to manage the property on behalf of the beneficiaries. This can be a family member, a friend, or a professional trustee.
• Transfer the property: You will need to transfer the property to the trustee, who will then hold it on behalf of the beneficiaries.
• Create a trust deed: You will need to create a trust deed, which is a legal document that sets out the terms of the trust and the powers of the trustee.
• Register the trust: You will need to register the trust with the relevant authorities, such as the Land Registry or the Companies House.
It’s worth noting that the process of setting up a trust can be complex and time-consuming, and it’s recommended that you seek the advice of a qualified solicitor or financial advisor to ensure that the process is carried out correctly.
Conclusion: Gifting property to your children without paying CGT is possible, but it requires careful planning and execution. By placing the property in a trust, you can avoid paying CGT and ensure that your children inherit the property without any tax liabilities. However, it’s important to seek the advice of a qualified professional to ensure that the process is carried out correctly and that you are aware of all the potential benefits and drawbacks of setting up a trust.
