Joint Ownership Query

chickpee

Several years ago my MIL gifted a third of her house to both of her sons so the three of them now jointly own the property.

She has recently decided that she wants to move to be closer to us but we are wondering what the tax implications might be for us as we have a mortgage on our own home so I am guessing Capital Gains Tax may be an issue if my husband's third is classed as a second home.

Obviously we will take legal advice but I wanted to see if anyone has been in a similar situation. My MIL doesn't want to downsize so there won't be any money left over from the sale of her house to pay a tax bill so we are thinking that we might have to remortgage in order for her to move.

Any advice on this situation would be much appreciated. Thanks.

fathippy

You need to ascertain if there is a capital gains before tax becomes due. If the house is worth no more than the value when it was gifted then there is no liability.

If not, how about cancelling the original gift and re-gifting a share in the new house. This will increase the risk of inheritance tax issues, however if the MIL is unlikely to have a large enough estate, or if she is likely to live on for at least another seven years, this may not be a problem.

CLAPTON

The two sons will each have a cgt liability

bascally it will be based on a third of the 'gain' in the propertry since acquisition i.e.

so they will need to determine the value of the house when they acquired their share
HMRC may take the view that the actual value of the house then was less than the market rate as it was occupied (i.e. by MIL)

they each however have a cgt allowance of 10,100

if the share of the house has legally been transferred to the sons they can't just cancel the gift as this will incur an immediate cgt liability.

how much are we talking about here?

chickpee

CLAPTON wrote: »

The two sons will each have a cgt liability

bascally it will be based on a third of the 'gain' in the propertry since acquisition i.e.

so they will need to determine the value of the house when they acquired their share
HMRC may take the view that the actual value of the house then was less than the market rate as it was occupied (i.e. by MIL)

they each however have a cgt allowance of 10,100

if the share of the house has legally been transferred to the sons they can't just cancel the gift as this will incur an immediate cgt liability.

how much are we talking about here?

Thanks for the responses.

The house is worth about £210 000. My brother in law doesn't own his own property and currently rents so would CGT still affect him?

It's all a bit of a nightmare to be honest. The gifting was made with the best of intentions and the time the consequences of moving wouldn't have been such a problem. For us at the moment, the thought of having to increase our mortgage is frightening to be honest with threats of redundancy etc hanging over us.

I appreciate your input - thanks!

G_M

what was the house worth at the time of the gift?

fathippy

When was it gifted, and any idea of the rough value at that point in time. You want this amount to be as high as possible. With the recent troubles in the housing market it is conceivable that any time perhaps from 2005 onwards and you may not be sitting on a capital gain.

CLAPTON

chickpee wrote: »

Thanks for the responses.

The house is worth about £210 000. My brother in law doesn't own his own property and currently rents so would CGT still affect him?

It's all a bit of a nightmare to be honest. The gifting was made with the best of intentions and the time the consequences of moving wouldn't have been such a problem. For us at the moment, the thought of having to increase our mortgage is frightening to be honest with threats of redundancy etc hanging over us.

I appreciate your input - thanks!

the tax is applicable to the GAIN in value between the time of acqusition and the time of sale

what was the market value when the gift was made?

cgt applies to anyone selling 'their' property unless it is their principal private residence (PPR) i.e. they actually live there i.e. on the electroral roll, have bank statements sent there etc.

chickpee

Thanks again for all your thoughts.

The property was gifted in 2002 and looking at the land registry I would guess the sale value would have been around the £170 000 mark.

I'm feeling slightly better thet it might not cost us quite as much as we thought.

Thanks all!

fathippy

you should be fine - a third of 40k is 13k and you have an allowance of 10, so 3k at 18% should be about £500 - so not a disaster.

is the MIL going to hold onto the equity part though to re-invest in the new place

CLAPTON

well if it were 170,000 and the sale price was 210,000
then the gain would be 40,000 less allowable costs (selling) say 3k?

so gain would be 37,000

so each persons gain would be 12,333
MIL is exempt as its her PPR

the sons would pay tax on 12,333-10,100 = 2,233 at either 18% or 28% depending upon their other income

however, as I've said the HMRC may take the view the house was worth less than 170,000 as that would be the full vacant possesssion price and not the price with a sitting tenant (MIL)

however the tax isn't enormous

You don't say why MIL gave part of the house away, but it's rarely a financially good idea as it doesn't protect the estate from IHT and it doesn't protect the property from care home costs and you can end up paying cgt in addition.

chickpee

You are all stars - thank you! I've had such a panic without thinking things right through and if she does sell and we have to pay CGT then the bill won't be quite as bad as we feared.

Clapton, I'm not really sure why she gave part of the house away. It used to belong to MIL and our grandmother in joint shares and when grandma died, MIL passed a third each to both her sons.

I remember thinking at the time what a generous gesture it was but we didn't recognise there might be consequences.

My concern was that we may have to remortgage but the costs are probably more affordable than we thought so much less to worry about.

Thanks for all your advice - it really has been appreciated. xx