Transferring property back to parents name / Paying Capital Gains Tax

kaznwood

My parents have been living in their house for around 12 years now. However 9 years ago we transferred the property into myself and my brothers name. The house has out grown my parents and they would now like to move into a retirement residence property for over 55's. Where they buy a 70% leasehold share (est. @ £120k). My concern is if we now sell their house ( legally our 2nd house. est. sell £200k) we will be liable for CGT. We cannot purchase the knew property as we are not over 55, therefore the new property will need to go back into my parents name. Could we transfer their current house back into their names without penalty or can anybody suggest any other options.

Thank you in advance..

silvercar

Transferring the current home back to the parents will incur a CGT liability.

If you and/ or your brother are married you could transfer half your individual shares to your spouses without CGT liability; that would give each individual a CGT allowance of £10,100.

The only other thing I can think of is to transfer some of the property from your parents to yourselves now and some after the end of the tax year, that would give you your CGT allowance in this tax year and next.

Only other thing to consider is to not sell the property once your parents move out. Would it rent easily?

pie81

Did you/your parents take any advice when the property was transferred 9 years ago and if so did they advise you that you would have to pay CGT when it was sold?

silvercar

pie81 wrote: »

Did you/your parents take any advice when the property was transferred 9 years ago and if so did they advise you that you would have to pay CGT when it was sold?

This sort of transfer was generally done as a potential exempt transfer with regard to inheritance tax. If the parents survive 7 years the property is then not included in the estate. It also avoids the property value being considered if the elderly need to be assessed for care home fees. The downside is the situation that has occurred.

What was the approx market value of the property when it was transferred?

A lot of 55+ homes do allow children to own property, provided that the occupants are relatives over that age. (This of course still won't help your CGT problem.)

noh

silvercar wrote: »

This sort of transfer was generally done as a potential exempt transfer with regard to inheritance tax. If the parents survive 7 years the property is then not included in the estate. It also avoids the property value being considered if the elderly need to be assessed for care home fees. The downside is the situation that has occurred.

.......................................

But if they continue to live there, unless a market rent is paid, it is a gift with reservation so remains within the estate for IHT purposes.
The 7 year period would only start when they stopped living there.

silvercar

noh wrote: »

But if they continue to live there, unless a market rent is paid, it is a gift with reservation so remains within the estate for IHT purposes.
The 7 year period would only start when they stopped living there.

Maybe they are paying rent, which would help reduce their eventual estate.

kaznwood

silvercar wrote: »

Transferring the current home back to the parents will incur a CGT liability.

If you and/ or your brother are married you could transfer half your individual shares to your spouses without CGT liability; that would give each individual a CGT allowance of £10,100.

The only other thing I can think of is to transfer some of the property from your parents to yourselves now and some after the end of the tax year, that would give you your CGT allowance in this tax year and next.

Only other thing to consider is to not sell the property once your parents move out. Would it rent easily?

We have transferred half to our spouses already but it is still a lot of CGT to pay. We did think of renting the house and raising a mortgage to buy the new property but figured the rent would be taxed also.

kaznwood

pie81 wrote: »

Did you/your parents take any advice when the property was transferred 9 years ago and if so did they advise you that you would have to pay CGT when it was sold?

Yes advice was sort, but no mention of CGT. Just that IHT would not be incurred.

kaznwood

Yes they are paying a rent of £1 per year.

kaznwood

silvercar wrote: »

This sort of transfer was generally done as a potential exempt transfer with regard to inheritance tax. If the parents survive 7 years the property is then not included in the estate. It also avoids the property value being considered if the elderly need to be assessed for care home fees. The downside is the situation that has occurred.

What was the approx market value of the property when it was transferred?

A lot of 55+ homes do allow children to own property, provided that the occupants are relatives over that age. (This of course still won't help your CGT problem.)

Forgot to mention the property was valued at £78k when transferred.

silvercar

kaznwood wrote: »

We have transferred half to our spouses already but it is still a lot of CGT to pay. We did think of renting the house and raising a mortgage to buy the new property but figured the rent would be taxed also.

The mortgage interest would be an allowable expense against the rental income.