We are looking to buy a property which our son will develop…

Thanks.

If you provide the money for the purchase of the property and the renovation costs and then gift your son a share of the equity, that will be treated as a disposal for Capital Gains Tax purposes and a gift for Inheritance Tax purposes.

Any transaction between connected individuals (you and your son are connected) is deemed to have taken place at market value so even if you give your son a share of the property where no money changes hands you will be deemed to have disposed of an asset, potentially incurring a capital gains tax liability and you will have to find the money to pay it.

As far as Inheritance Tax is concerned, any gift you make to your son will be what is called a potentially exempt transfer. As long as you survive seven years from th date of the gift the value of that gift will fall out of your estates for IHT purposes. If you die within three years of the gift, the value will form part of your estates for IHT purposes. If you die between three and seven years after the gift the potential IHT charge will be tapered the longer you survive. You each have a nil rate IHT band of £325,000 which means that the first £325,000 of your respective estates will not suffer IHT. Take a look here for more information on IHT.

In order to avoid a potential CGT charge for yourself, you might consider gifting your son the cash (no CGT on cash gifts) to invest in the purchase of the property you are thinking of buying and renovating. That way, you won't have a CGT problem and the IHT value of the gift will be lower than when the property has been renovated. When he comes to sell his share to you, any period he has lived there will mean that the gain on that proportion of his ownership when he was living there will be exempt from CGT due to the principle private residence rules so he should be able to use all his equity in buying his own house. Take a look here for information on CGT and the private residence.

I'm not a lawyer so I cannot advise you on the potential claim on your son's assets by his wife so you may need to take legal advice on that. I would also advise you to get further advice from an accountant on structuring the potential property purchase and ownership so as to minimise the tax implications for yourselves and your son as I have only given you a few pointers here. An accountant will be able to discuss the situation with you in greater depth than can be done here.

If you sell your larger home which I'm assuming has been your principle private residence since you bought it before you move to the smaller property then there will be no CGT to pay on that transaction. In fact, you have three years after it has ceased to be your primary home to sell it without CGT becoming a problem.

If you gift some money from the sale of your main home to your son there will be no CGT to pay as it will be a cash gift. IHT may be an issue if you die within seven years of making such a gift.

Thanks.