will i be liable for CGTax or ITax?

tommoturbo

Basically id like to know if this is possible,
My Mum is retired and owns property outright and we want her to live near us in a bungalow. As she is 73 it would be ideal to have her close by in a bungalow. So in principle rather then her house become un manageable she would like to sell it (£70K) and put this down as a deposit and us take out a mortgage (interest only) in our name for the outstanding balance and she live's there rent free.

a) is this legally ok (will we own property after my mum passes on)
b) in the unlikely even my mum go's into care will council try and sell poperty to pay for it
c) will we be liable for cap gains or inheritance tax

basically my mum wants to pass on the inhereitance of her house without losing it

any advice appreciated

ian

theartfullodger

a) is this legally ok (will we own property after my mum passes on)
.
Maybe
b) in the unlikely even my mum go's into care will council try and sell poperty to pay for it.
.
Under current rules (rules change) 7 years need to pass before council can't come after the money.
c) will we be liable for cap gains or inheritance tax.
.
Maybe

That nice Mr Cameron is trying to spend less on Benefits & hopes to get more people to pay for their care fees if they end up needing care... Chances are rules & tax rates will change...

G_M

a) Quite legal. Your mum either gives/lends you the money. You use it to buy new house in your name (+mortgage in your name).
b) You are unlikely to avoid the property being assessed by the council to ofset against care home fees. She lives in the property, they will investigate, and fine the money trail back to her house sale. You can't avoid care fees that easily.

c) If the new property ( and morgage) is in your name, but you do not live there as your main residence, then it will be asessed for CGT if /when you sell it.
Inheritance tax? She needs to survive 7 years for the gift of £70K to be exempt.

catloverbex

You need to be careful that this does not fall within the Gift With Reservation of benefit rules for IHT. Basically if somebody gives something away from their estate but continues to benefit from it e.g. it is not a genuine 'gift' then it will remain in the persons estate for IHT purposes. Your scenario is a prime example of what HMRC are trying to prevent with the gift with reservation rules. However, there is a nil rate band which exempts the first £250k of a persons estate from IHT (so the gift with reservation rules will only really bite if the value of your mothers estate (including the value of the new property) exceeds the nil rate band at the date of her death.

As the artfullodger mentions - there is no IHT to pay on the actual gift whilst your mother is alive. The gift will be known as a 'potentially exempt transfer'. It will only become chargeable if your mother dies within 7 years of giving the gift.

The rules are quite complex and i've only given a really brief superficial overview. I'd recommended getting some advice on this.

Hope this helps and gives you something to think about : )

tommoturbo

Thanks for the reply.

What would happen if my mother gave me power of attorney over her estate? would that change things?


thanks

ian

Not_a_Newbie

tommoturbo wrote: »

Thanks for the reply.

What would happen if my mother gave me power of attorney over her estate? would that change things?


thanks

ian

Power of attorney just means that you mum has given you authority to make decisions on her behalf.

magpiecottage

a) Yes - provided you can find a willing lender.
b) In the circumstances you suggest, I am not sure that it would as only part of the property value would come from her contribution.
c) IHT in theory yes but £70K is only about 20% of the IHT threshold so it is unlikely. CGT, probably on your gain after costs.

A shared ownership may be a better option - a local authority will not be able to force her to sell part of a house and suspect only pay CGT on your share of the gain.

tommoturbo

Thanks for the replies very informative,
the nationwide have told me i can borrow up to £80k and they are fully aware of the situation (i have my mortgage with them already and they know my finanaces)

the property value in total is £150K and we would be mortaging the £80k on interest only as this is the only way we could afford my mum to be close by. so it would be under the threshold of CGT?

Thanks

ian

G_M

tommoturbo wrote: »

Thanks for the reply.

What would happen if my mother gave me power of attorney over her estate? would that change things?

ian

That does not change either who owns the assets, not what tax liabilities are/will be due. It only changes who makes the decisions.

timmyt

tommoturbo wrote: »

Basically id like to know if this is possible,
My Mum is retired and owns property outright and we want her to live near us in a bungalow. As she is 73 it would be ideal to have her close by in a bungalow. So in principle rather then her house become un manageable she would like to sell it (£70K) and put this down as a deposit and us take out a mortgage (interest only) in our name for the outstanding balance and she live's there rent free.

a) is this legally ok (will we own property after my mum passes on) only if you hold as joint tenants (as opposed to tenants in common) you don't suggest a GIFT so I won't comemnt on that
b) in the unlikely even my mum go's into care will council try and sell poperty to pay for it depends if you can argue she sold up bought jointly for non care home avoidance reasons...sounds ok.
c) will we be liable for cap gains or inheritance tax not CGT if she dies owning her share...not that house prices are rising. IHT maybe, if she dies with more than £325k in the bank...and possibly double that if your father is pre-deceased and left everything to your mother

basically my mum wants to pass on the inhereitance of her house without losing it

any advice appreciated

ian

good luck OP

poppysarah

tommoturbo wrote: »

the property value in total is £150K and we would be mortaging the £80k on interest only as this is the only way we could afford my mum to be close by.

What if your circs changed and you couldn't pay the mortgage? What would happen then?
Could you not extend your own home and get her to move in there?