IHT/CGT Questions

Melvyn

New to the site and hoping you can help out with a bit of advise. Relative of my girlfriend bought a house a couple of years ago for cash and put it in her name, his solicitor drew up a lifetime tenancy agreement for her uncle at £1 a year rent. The rely died a few months back and she now wants to sell the house and I don't think it's all as straightforward as she does.

The relatives estate was not liable for IHT according to his solicitor. Is the house relevant for IHT as he died less than 7 years after buying it (I mean could it add to the total and make it all liable)? Will she have to pay CGT if she sells up (she rents, doesn't own another place)?

Does she need to tell the tax man anything or does this happen automatically when if sells and puts the cash in the bank? I don't want her to be in trouble witht  the tax man if she does it wrong.

Thanks - not needed tax advise before as you can probably tell!

Mel

Rafter

Sounds as if the house is a 'potentially exempt transfer' to your girlfriend.

I think the house should be included in his estate as a result. Has your solicitor taken this into account when saying that the estate is not subject to IHT?

Would this uncles total estate have been above the threshold (about £260k) including the house?

As far as paying CGT, if she owns no other property she can elect for this house to be principle private residence and there is therefore no capital gains tax payable.

As long as the solicitor knows his stuff and has done the calculations on the house and total estate right there should be no tax payable.

R.

Robert_Sterling_3

£1 per annum for life does not seem like a reasonable, arms length, annual rent to me.
If he had just given her the money it would indeed be a Potentially Exempt Transfer.
I think this is a clear example of a "Gift with Reservation".
We do not know the value for probate of the relatives other assets nor do we know the amount paid for the house or its value when bought nor its value today.
i.e. We are much in the dark here.

Melvyn

Thanks guys - estate would be over £260 thousand if this house was included in the sums, there was another house included in the estate already which is nothing to do with her. I think but am unsure without talking to her that the house she owns cost about £150 thousand and is worth probably something like £200 thousand today I would think. About the £1 rent - I was a bit surprised but surely the solicitor knew what he was doing?

Is the Potentially Exempt Transfer the seven year rule thing?

If the interest income puts her in the high tax bracket does she have to do anything or do the bank and tax man sort it themselves? I would like to make sure everything is done correctly as she doesn't seem to pay much attention to it.

Thanks

Mel

Robert_Sterling_3

The current IT nil rate band is £263000.
If the solicitor has said in writing that no IT is true then, assuming that he/she is aware of all relevant facts, accept his/her advice ( unless he is another uncle ).


My advice is of course not professional and should be treated as advice which you misheard in a pub.

Melvyn

I have a healthy suspicion of lawyers ::) and don't want to see her get in trouble... The lawyer is sorting the estate so I suppose they must rely on his advice and not worry too much about it.

If she sells up and banks the cash, does she need to tell anyone or is it done automatically?

Mel

Melvyn

An update - probate has been done by the lawyer and it seems the whole estate including the gift of the cash to buy this bungalow didn't go over the IHT threshold.

So, she will not have to pay any IHT if she gets rid of the house but will she be liable for capital gains (its the only property she owns but she does'nt live in it)?

Thank you

Mel