Slightly complex tax issue

Marwanie

Hello!

Been lurking for a while, but finally registered after I found this section.

Here's my query:

My parents both own 1 house in the UK each, my mother's primary residence is my father's house and it has been that for the past 15 years.

Her secondary residence is valued at approx. £450k and she has made a large capital gain on it. If she were to sell it, it would be subject to CGT at 18% right?

Is there anyway to go around this WITHOUT living there for a year?

Could the house be fully transferred into my name then I live there for a year and sell it?

Also, if SHE were to live there and sell it, then gifted me the money, would there be any tax on it? What if she gifted me the money then died within a few years after, would I be forced to pay inherritance tax (since its above £320k)?

Any advice on my situation would be great.

silvercar

Are your parents married? If so they can have only one principal residence between them.

Your mother's secondary residence, has she ever lived in it as her principal residence? If so that would reduce her CGT liability. Even if she moved into it now, there would still be a CGT liability.

Transferring the house to you would trigger a CGT liability for your mother, so that achieves nothing.

If she lived in it and is married to your father, that would create a problem as they can have only one residence between them as a married couple. They could both live in it for a while, but that reduces the CGT liability, but not by that much I fear.

Selling or transferring the property triggers the CGT liability, so selling it then gifting you the money and not surviving very long could mean a CGT liability followed by an IHT bill.

I think you need to (if you are happy to) post date of purchase and price along with details of who has lived there or if it has been let in the interrim. The dates your mother actually lived there would also be needed.

CLAPTON

as it's not her principal private residence then she will pay CGT if she
sells it

or if she gives / sells it to you as this counts as a disposal for CGT purposes


assuming your parents are married then they can only have one PPR between then at any one time

if they both move in to this house as their PPR then in principle the last three years will count as PPR but expect the HMRC to be a little suspicious
i
f she sells it then she pays CGT
if she gives you money whether or not from the sale then it will be a potential exempt traansfer and so will potentially attract IHT if she dies within seven year...but that depends upon what she does with the rest of her estate but you dont pay any IHT, the estate will.

Marwanie

silvercar wrote: »

Are your parents married? If so they can have only one principal residence between them.

Your mother's secondary residence, has she ever lived in it as her principal residence? If so that would reduce her CGT liability. Even if she moved into it now, there would still be a CGT liability.

Transferring the house to you would trigger a CGT liability for your mother, so that achieves nothing.

If she lived in it and is married to your father, that would create a problem as they can have only one residence between them as a married couple. They could both live in it for a while, but that reduces the CGT liability, but not by that much I fear.

Selling or transferring the property triggers the CGT liability, so selling it then gifting you the money and not surviving very long could mean a CGT liability followed by an IHT bill.

I think you need to (if you are happy to) post date of purchase and price along with details of who has lived there or if it has been let in the interrim. The dates your mother actually lived there would also be needed.

She bought the house in '87 for £20k (although she lived there previously but it was rented then I believe) , and moved out in '93. Ever since it has been rented out with five tennants. If there is anything else you need just ask and I'll find out. :-)

fengirl_2

The period she lived in it is exempt, as are the last 3 yrs of ownership. Then there is a let property exemption of up to £40,000 on the remaining gain, as well as her annual exemption.

Marwanie

Unfortunately I am not good on taxes. Could you please explain how much she'd be paying in tax if she sold it tomorrow (going by what you just said)?

Also can someone confirm that gifting £400k+ would/wouldn't incur gift tax or something?

mrkbrrws

No such thing as gift tax. If the donor died within seven years then part or all of the gift would be subject to Inheritance Tax.

Marwanie

mrkbrrws wrote: »

No such thing as gift tax. If the donor died within seven years then part or all of the gift would be subject to Inheritance Tax.

Is there any way to avoid this? Putting into an offshore account or so?

localhero

One option is to keep both houses and dispose of them in their Wills.

If their combined estate is less than £624,000 then they would escape CGT and IHT.

Marwanie

localhero wrote: »

One option is to keep both houses and dispose of them in their Wills.

If their combined estate is less than £624,000 then they would escape CGT and IHT.

It's more unfortunately. =/

localhero

What are your parents trying to achieve?

If they are seeking to get assets out of their estate for IHT, then have they got other assets that won't incur CGT to give away instead?

If their main assets are the properties, and they want to get one out of their estates then what ever way they do this it counts as a disposal for CGT.

If they are reluctant to pay CGT, then I think one option available is to give the property to a trust, which could defer CGT.

CGT is really not my area of expertise, so perhaps Jimmo might be able to help further. Failing that your parents might consider talking to a specialist - perhaps a member of STEP.