Help needed with IHT and CGT issue - UK/Spain

stolpis100

Hello all,

I am writing here to find out if anyone can offer some advice to me with my following conundrum!

My Mother has just recently moved (Last October) over to Spain with her partner. They own a property outright there and both their names are on the deeds. They are officially 'resident' there and will shortly be getting married to minimize any inheritance tax when one of them passes away and leaves 50% of the house to the other.

Additionally my Mother owns a property in London (just her name on this one). She owes £18000 on her mortgage and is currently renting it out to provide an income in Spain.

There are a series of issues here that i'd like to have plans in place for.

As far as I have managed to gather there is an approximate 34% tax charged on the 50% of the house left to the other. The only way to pay this bill would be to sell the London house, at which point it would be subject to Capital Gains Tax at 18% on the profit made. So potentially when one passes away it could be an absolutely huge bill to have to pay and a house would be lost in the process, which, of course, couldn’t come at a worse time.

She has also spoken to me off her desire to avert as much potential Inheritance Tax when eventually the property/properties are passed on to me. I know there are various options such as Trusts or passing on a property 7 years prior to passing away but I am still unsure off what the least stressful and financially effective route is.

Any help in this matter would be extremely appreciated.

Ian_W

Wow, I think you're being extremely optimistic hoping to get free and reliable advice on such a complex situation involving tax liabilities in 2 different countries on an internet forum. I really would suggest both you and your Mum seek professional advice in order to try to minimise your tax liability, hopefully what you'll pay for the advice will be more than saved when she passes away and tax becomes due.

To try and be helpful here are some thoughts. Will your Mums total (here and in Spain) estate be more than the UK nil band rate for IHT (currently £325K)? If not she won't be liable here, though she may well be in Spain - different rules - but if she is any Spanish IHTax paid should be offset-able against UK liability due to double taxation treaty (only my opinion which may be wrong but the principle is you don't pay tax twice for the same thing in different countries).

In respect of her disposing of the London property pre her death. If she gives it to you she may well still have a CGT liability at market value even if no money changes hands. A gift to be discounted for IHT after 7yrs has to be "without reservation" - if she still receives the rent then it may not be discounted as she hasn't really given it to you and is still the beneficial owner. If you receive the rent, you may have income tax to pay. When you sell you'll have a CGT issue.

Trusts can be a way but not always - or at least that's what others more knowledgeable than me on here have posted.

Could I suggest you try posting on the Cutting Tax board, 2 or 3 below this as there are some accountants and former Tax Inspectors who are very helpful but I still feel you'll need individual advice to find the best approach. HTH.

stolpis100

Thanks. I know I am being absurdly optimistic by posting this on here, and I appreciate your reply as I thought it may well be completely ignored! Both myself and my Mum do not have much cash floating around for advice right now so I thought I'd at least try here.

I will take your advice and post this on the Cutting Tax board and also include the property values as you requested.

Thanks again