Property: CGT? Inheritance?

frivolous_fay

Hello,

Someone suggested I posted here as it's more relevant to this forum.

http://forums.moneysavingexpert.com/showthread.html?p=2275788&posted=1#post2275788

Grateful for any pointers!

Tiggs_2

so in simple terms FIL bought a house and you rented it of him (he used your rent to pay the mortgage)

did you put any money in at all or is it all your FIL's?

with regards to the IHT position, IHT is a tax on the loss of value to the FIL's estate....so if he OWNS something (the flat) and gives it to you his esate has lost value....and thats the IHT issue. Its a 7 year gift so if he lives no issue, if he dies there wont be any tax due (unless the gift is over £285k) but it will errode his nil rate band.

just thinking this through....is it as simple as this (i have made up figures)

FIL buys house for £200k with a £200k loan in his name (which you pay for via the rent)

house now worth £265k...sold, 65k gain after paying off the loan. FIL pays CGT on the gain.....left with £55k (made up the CGT as no idea what it would be) He then gives you the £55k...........thats a gift, well under his NRB so no IHT issue and even if he dies within 7 years all it does is reduces his NRB by £50k (taper relife will have no effect)

ohh....and has he been paying income tax on the rent you paid as unearned income?

thats my take on it but must admit only the IHT issue is in my field.

frivolous_fay

Tiggs wrote:

so in simple terms FIL bought a house and you rented it of him (he used your rent to pay the mortgage)

In simple terms, yes. We don't consider it rent as we're not paying any more or less than what it would have been if the mortgage was in our name... and because, morally (verbally?) the flat is ours.

Tiggs wrote:

house now worth £265k...sold, 65k gain after paying off the loan. FIL pays CGT on the gain.....left with £55k (made up the CGT as no idea what it would be) He then gives you the £55k...........thats a gift, well under his NRB so no IHT issue and even if he dies within 7 years all it does is reduces his NRB by £50k (taper relife will have no effect)

Looks good. I'd love it if it was that easy. £51k original price. Remortgage on existing property so amount of loan not clear-cut. With luck, a £64k gain. I'm not familiar with nil rate bands or related implications.

Tiggs wrote:

ohh....and has he been paying income tax on the rent you paid as unearned income?

I suspect not. We're talking £2,880 p/a, in case that's relevant.

Tiggs_2

well the 64k is a gain and theres CGT to pay on it...whatever he's left with he gives to you as a gift.

there is no tax on the gift if he lives 7 years....if he dies BEFORE 7 years then his NRB (the amount he can leave on death before IHT is due) will be lowered by the value of the gift)...thus the gift has no tax issues but his esate will pay a bit more tax than it otherwise would IF he dies before 7 years.

ps i'm no lawyer but i dont think you can own a house morally