Second property "tax" concerns and questions

numbers

silvercar wrote: »

In terms of her benefitting from the will, the property's value may be included in the estate and any inheritance tax calculation could include the value of the property. There would be no question of the son getting the property. Technically on her death you would inherit something as you move from having a property with a sitting tenant paying no rent (your MIL) to an empty property.

Having looked at the inheritance tax threshold (£325,000) Even if the property were included in the estate, the estate would be well below £325,000, therefore would I simply "inherit" the property with zero tax implications for myself or her estate?

If there are zero tax implications and the property comes to me, then I guess I would be in ok shape.

silvercar wrote: »

When you sell something but retain the right to live in it, you are really keeping hold of it and therefore the inheritance laws consider it to be part of your estate. To exclude it from the estate you would have to charge a market rent, but you can't do that due to the terms of the sale.

Is it possible to change the terms of the agreement at this stage? all parties have each others interests at heart so can something be rejigged? Can the right to live rent free being an agreement in writing simply b ripped up and a new agreement implemented?

Thanks

numbers

silvercar

numbers wrote: »

Having looked at the inheritance tax threshold (£325,000) Even if the property were included in the estate, the estate would be well below £325,000, therefore would I simply "inherit" the property with zero tax implications for myself or her estate?

If there are zero tax implications and the property comes to me, then I guess I would be in ok shape.OK for inheritacne tax, you just need to sort the CGT.


Is it possible to change the terms of the agreement at this stage? all parties have each others interests at heart so can something be rejigged? Can the right to live rent free being an agreement in writing simply b ripped up and a new agreement implemented?Yes I don't see why not, but you may not need to. There is always the risk that it will look contrived that someone rents off a family member.

Thanks

numbers

I'm not an expert on deprivation of assets for care costs.

numbers

silvercar wrote: »

OK for inheritance tax, you just need to sort the CGT.

But the CGT only applies if I sell the property?

Thanks

numbers

silvercar

numbers wrote: »

But the CGT only applies if I sell the property?

Thanks

numbers

Very true.

jockosjungle

CapitanPugwash wrote: »

Hi

The above is incorrect in that you get CGT relief (don't pay CGT) on your main home- FOR THE TIME YOU LIVE IN IT. There is an additional relief that means even if you live in it for 1 year you get 3 additional years free from CGT. You may see this referred to as PPR relief- Principal Private Residence. So, this means that if you owned the house for 8 years and lived in it for 1 of the 8 years, you would get 1 year + 3 years free from CGT, meaning you would pay CGT on 4/8 (or half) of the profit. So say £80,000 profit, then you pay CGT on 1/2 of this or £40,000. You can also nominate your PPR retrospectively.

This isn't quite correct, if you own it eight years and live in it for the last year, you get the last year and the next three years, you cannot have the three years previous when it wasn;t your home.

HMRC may also question whether it is your actual home, which if you have a nice house, moving to a council flat for a year may seem a little odd to them (especially if you move back).

If your mother is in good health (you didn't mention an age) then who knows what the rules would be in twenty years time. Remember its only the tax on the profit you make so at worst it'll be 28% but you may find it a better income to rent it out.

Also I don't see any issue with charging no rent

R

CapitanPugwash

jockosjungle wrote: »

This isn't quite correct, if you own it eight years and live in it for the last year, you get the last year and the next three years, you cannot have the three years previous when it wasn;t your home.

HMRC may also question whether it is your actual home, which if you have a nice house, moving to a council flat for a year may seem a little odd to them (especially if you move back).

If your mother is in good health (you didn't mention an age) then who knows what the rules would be in twenty years time. Remember its only the tax on the profit you make so at worst it'll be 28% but you may find it a better income to rent it out.

Also I don't see any issue with charging no rent

R

Jackos jungle

"Working out the relief

To work out the relief, you need to work out the period that you've owned your home for. This starts on the later of:

• the date you bought or acquired it
• 31 March 1982

It ends on the date that you sell or dispose of it.
The final three years (36 months) always qualify for relief, even if you weren't living there, as long as it's been your only or main home at some point during the time that you've owned it"

The final paragraph would infer that if you lived in for the last year, you would indeed get 3 years PPR relief even though they are prior to it being your home not subsequent to it being occupied as a main home.

This came from http://www.direct.gov.uk/en/MoneyTaxAndBenefits/Taxes/BeginnersGuideToTax/DG_4016313

00ec25

jockosjungle wrote: »

This isn't quite correct, if you own it eight years and live in it for the last year, you get the last year and the next three years, you cannot have the three years previous when it wasn;t your home.

No - if the only time you lived in the property was during the last 36 months then you can only claim a maximum of 36 months private residence relief.
During the last 36 months of ownership you cannot claim period of actual occupancy + another 36 months.

see HS283

if you have not always lived in your home, other than allowed periods of absence, multiply the total gain by a fraction equal to the period you actually lived in the dwelling house plus any allowed periods of absence plus any part of the final 36 months not covered by actual occupation or allowed period of absence, divided by the period of ownership. That part of the gain will be exempt

BTW there is no such rule as live in it for 1 year - the test as to whether it is your main home is not related to how long you live there, it is based on the facts of how you treat the house, is it really your main home, that test if not dependent on how long you occupy it for

CapitanPugwash

BTW there is no such rule as live in it for 1 year - the test as to whether it is your main home is not related to how long you live there, it is based on the facts of how you treat the house, is it really your main home, that test if not dependent on how long you occupy it for

Very good point. The one year was given as an example. The IR will look at intent and this is very subjective!