What issue arise from buying out parent's house?

lightSwitch_3

My mother wants four siblings to inherit her main residence and for herself to move abroad. My brother and I see this as too many people on one property and have proposed the following:

That my brother and I want to buy it from her and pay our mother the full market value for it, half the money from the sale she will immediately give to our sisters and the other half or whatever is left of it she will give to my brother and I as inheritance at some point in the future.

My questions are.

1. By law, is the market value sale of the house to us from our mother the same as us buying a house from any other proprietor in the UK or do the inheritance tax people want a slice?

2. Since we are not actually inheriting the house but buying it from her can my mother still live there without us worrying about inheritance tax issues?

3. Does my mother and/or sisters have to pay capital gains from the proceeds of the sale?

4. What are the implications if my brother and I immediately receive back from our mother half or some of the proceeds that we stand to inherit anyway?

BitterAndTwisted

lightSwitch wrote: »

My mother wants four siblings to inherit her main residence and for herself to move abroad. My brother and I see this as too many people on one property and have proposed the following:

That my brother and I want to buy it from her and pay our mother the full market value for it, half the money from the sale she will immediately give to our sisters and the other half or whatever is left of it she will give to my brother and I as inheritance at some point in the future
My questions are.

1. By law, is the market value sale of the house to us from our mother the same as us buying a house from any other proprietor in the UK or do the inheritance tax people want a slice? If something is bought at market value there are no issues with inheritance tax because no-one has died yet.

2. Since we are not actually inheriting the house but buying it from her can my mother still live there without us worrying about inheritance tax issues? Once you own a property you can have anyone living there you choose.

3. Does my mother and/or sisters have to pay capital gains from the proceeds of the sale? Depends on the value

4. What are the implications if my brother and I immediately receive back from our mother half or some of the proceeds that we stand to inherit anyway?

You appear to be confused between buying something and inheriting it. Just because you're thinking about this house and its proceeds as your "inheritance" does not mean they are the same thing. There are issues with inheritance tax but these issues only arise once the person has died and your mother is still living. Under UK law there are no taxes levied on gifts.

lightSwitch_3

I'm a bit confused about your response to my question 1.

If we buy her house at market value and, let's say this time she gives all the house sale proceeds to our sisters, then dies one month later, are you saying that there will be inheritance tax implications for my brother and I? I know my sisters will have a lot of IHT to pay.

We haven't benefited financially if our sister get all the proceeds so I can't see why we will pay IHT on her death but I don't know if they view it differently when buying from ones parent.

BitterAndTwisted

Ar you saying that your mother will not benefit from any of the proceeds from the sale at all? What is she going to live on and what is she going to live in when she moves abroad and what's the rush in any case?

PasturesNew

How much is this house worth? If the total value of everything she has (house, savings, investments) is under about £300k,there's no IHT. You only pay IHT on everything over £300k, so if the house is worth £100k and she has savings of £100k and shares of £50k and her personal possessions/jewellery are worth £10k ... the total of that lot is still under the threshold.

lightSwitch_3

She has income from other properties and abroad she has a nice flat to live in.

The house is £650K so there will be some IHT if we outright inherit it ie her name comes off our names go on with no exchange of money.
But my question is what happens if we just buy it off her, she gets the cash and gives it to our sisters?

CLAPTON

1. you can buy the house at full market value
you pay stamp duty etc exactly as if you were buying any property
there is no other taxes to pay

2. your mother can give money away if she wants to
if she dies within 7 years then the gifts will be aggregated with her asset and if above the IHT limit then IHT will be payable by the estate (the current IHT allowance is 325,000 or 650,000 if she can use her spouses allowance)

3. if she lives there rent free then issues may arise as to whether the house sale and gift of money are connected issues and in reality she hasn't really given it away.. outside my competence here but you would need expert advice but it may be viewed as a gift with reservation.

4. if you don't actually move in, when you eventually sell it you will be liable to cgt

BitterAndTwisted

lightSwitch wrote: »

She has income from other properties and abroad she has a nice flat to live in.

The house is £650K so there will be some IHT if we outright inherit it ie her name comes off our names go on with no exchange of money.
But my question is what happens if we just buy it off her, she gets the cash and gives it to our sisters?

I've already told you but you appear not to have understood: if you buy the house at market-value there will be no inheritance tax levied as your mother is still living. These taxes are only levied on the estate in a person's possession upon their death. If she dies after the sale goes through and she's gifted what monies she chooses there will be no inheritance tax as the house and its proceeds will no longer be in her possession. There are no UK taxes levied on gifts.

There might be Capital Gains taxes involved but I don't have information about that to hand and there might be tax implications should you mother die within a certain time-period after she's divested herself of this asset and the proceeds.

As the asset is so valuable and you stand to acquire rather a large part of it I suggest you seek professional advice or post your question on the investment part of the forum where you may get more specialist advice.

poppysarah

If she gives half the money to your other 2 siblings but doesn't give you yours until she dies what if :
there's not the same amount left,
it's not written in will for you to get that amount and so it gets divided up again.

getmore4less

Assuming that she actualy does move abroad you need to consider that the tax situation may change completely if she then dies there.

00ec25

lightSwitch wrote: »

My mother wants four siblings to inherit her main residence and for herself to move abroad.

From reading other posts I think there is a limit to the number of people who can be individually listed as owners on the Land Registry, 4 may be too much so you couldn't do it anyway

1. By law, is the market value sale of the house to us from our mother the same as us buying a house from any other proprietor in the UK or do the inheritance tax people want a slice?

As advised, on the point of sale no inheritance tax will be due and the fact it is at market value is relevant against the future inheritance tax and CGT issues.

2. Since we are not actually inheriting the house but buying it from her can my mother still live there without us worrying about inheritance tax issues?

It depends what she does with the sales processed you have paid her. If she "gifts" that money back to you or a sibling who has a share of ownershup of the property then she will be classed as giving the house with reservation and the value of the property will still be included in the valuation of her estate when she dies, notwithstanding the fact you "bought" if from her well before death

3. Does my mother and/or sisters have to pay capital gains from the proceeds of the sale?

There is no CGT to pay by mother because I am assuming it is currently classed as her main residence, (mother's current tax domicile status? the overseas flat status?)

If you then effectively buy out your sister's share of the house then yes the sisters will have a CGT liablity but only on the gain in value between the date they bought it and the date they sold it. As they bought their share at full market value and you then bought them out at full market value this liability should be zero becuase the house will not have changed in value betwene the two transactions. You will need to prove to HMRC it is fair full open market value otheriwse they will apply CGT as this is a formally classed as a sale involving "connected persons" - proof comprises more than one formal quotation.

In addition, once you and/or your siblings own the property then, (subject to clarification of the gift with reservation issue in 2 above) both you, and anyone else who fails to live in the house as their main residence, will be liable to CGT from the date of the transfer until you or the sibling sells their share.

4. What are the implications if my brother and I immediately receive back from our mother half or some of the proceeds that we stand to inherit anyway?

see 2 above

see comments above in bold