Estate-Planning Question Regarding Life Interest in Rental Property

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I understand that a parent can transfer ownership of their principal private residence to an adult child while they are still alive, while retaining a life interest in the property (including the right to reside there), as a way of potentially reducing inheritance tax, since any capital acquisitions tax owed will be assessed on the value of the property at the time of the transfer, as opposed to on what may be its increased value when it is eventually inherited fully (although a gift of property, unlike an inheritance, is subject to stamp duty).

Does anyone know whether it is equally possible to transfer ownership of a rental property to an adult child, while retaining a life interest in it, and thus a lifelong entitlement to the rental income stream?
 
You're into a very specific area of tax planning, where specialist advice should be sought.
There is potentially CGT for parents on transfer (which disappears if kept to death), stamp duty for child, 2 seperate sets of legal fees. Child can never sell property when you are alive without triggering 2nd tax event.
And reams of anti-avoidance legislation to trip you up. It's technically possible, but you need to discuss with a tax specialist on the pitfalls.
 
Thank you for your reply, Red Onion! It’s good to know that it’s technically possible. I was thinking in terms of purchasing a rental property and immediately transferring ownership, in which case, presumably, no CGT would be due, although stamp duty etc. would have to be paid twice.

I’m aware that it would be a complicated and somewhat expensive process requiring specialist advice, but given certain assumptions involving the parent’s life expectancy, the trajectory of property values, and future CAT thresholds—any of which might of course turn out false—the potential tax savings could outweigh the transaction costs incurred.
 
Investor said:
Thank you for your reply, Red Onion! It’s good to know that it’s technically possible. I was thinking in terms of purchasing a rental property and immediately transferring ownership, in which case, presumably, no CGT would be due, although stamp duty etc. would have to be paid twice.

I’m aware that it would be a complicated and somewhat expensive process requiring specialist advice, but given certain assumptions involving the parent’s life expectancy, the trajectory of property values, and future CAT thresholds—any of which might of course turn out false—the potential tax savings could outweigh the transaction costs incurred.
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Would you not consider buying the property and putting it in joint names? Upon your death it would pass directly to your child and bypass probate.
 
Silversurfer said:
Would you not consider buying the property and putting it in joint names? Upon your death it would pass directly to your child and bypass probate.
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Avoiding probate does not avoid tax.

It would be 50% gift now, and 50% inheritance on death, with 50% of the rental income taxable to child.
 
RedOnion said:
Avoiding probate does not avoid tax.

It would be 50% gift now, and 50% inheritance on death, with 50% of the rental income taxable to child.
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My reply never referred to avoiding tax. It was a suggestion that perhaps it might be cleaner to have it in joint names as it will pass upon survivorship. It would also eliminate the need for doubling up on stamp duty/conveyancing. As jointly held property is outside the current parameters of probate it would be worth looking at for estate planning.
 
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