Parents property

Scully30

I'm planning to buy my mom's house for £120k, even though it's valued at £250k. As my mom is disabled I will be living in the propery, and my mother will not be paying rent (only household expenses) as i'm her carer and she is on disability. She plans to give the money to my sister, like an early inheritance. However as my mom is quite poorly and may not make it through this year. How would it stand with regards to IHT and CGT? Would I be liable or my sister, or both? I don't want to be stuck with a whopping tax bill at the end of the day on top of a large mortgage i've had to get with buying the house.

Any help would be gratefully appreciated

real1314

I think you need proper tax / legal advice in this situation.

The money she gives to your sis is likely to incur inheritance tax.

the difference between the price you are paying and the true market value could also incur inheritance tax.

How much is her estate likely to be worth? I think inheritance tax doesn't start until the estate exceed £300k+ (see HMRC.gov.uk for exact figures?)

Scully30

real1314 wrote:

I think you need proper tax / legal advice in this situation.

The money she gives to your sis is likely to incur inheritance tax.

the difference between the price you are paying and the true market value could also incur inheritance tax.

How much is her estate likely to be worth? I think inheritance tax doesn't start until the estate exceed £300k+ (see HMRC.gov.uk for exact figures?)

The estate shouldn't exceed the £300k mark, as the property is the only asset (so to speak she has). Does it make any difference if i've been living in the property for 3 years? That's the part that concerns me, is the inheritance tax. I have my own property, but due to my dad's death a couple of years ago, i've been living with my mom (my house has not been rented, as i've been flitting between living at my mom's and mine). My parents originally bought the property for for £235k a few years ago, and as its always been my mom's home, I wasn't sure if she would have to pay CGT on selling the property as it has been her main place of residence, but I'm just not sure on the IHT side of things and who would be liable and if there would be other tax to pay on the property if anything happened to mom.

Thanks for you time and help.

real1314

just checked HMRC myself, looks like the limit is £285k from april 2006.

There's no CGT on a primary residence, which this would be for your mum up to sale, however after the sale it would be your property and may be subject to CGT for any increase in value from then until sold (especially as you have your own property as primary reisdence). If one of the properties is liekly to rise in value more than the other then it would probably be wise to use that as your primary residence, but you'd have to make sure you stay legal on this which is why I'd advise professional help.

a few hundred quid could save you a few thousand.

mountainofdebt

gifted the money to your sister then the amount would be liable to inheritance tax for the next years abet on a sliding scale.

I have a feeling that your mum could make a gift of up to £3000 to your sister in each tax year without becoming liable to inheritance tax.

I agree though getting proper financial advice on the implications of what you plan to do would be well worth it.

Bossyboots

The difference between what you are paying and market value will also be classed as a gift to you and is likely to fail the seven year rule if your assumptions about her health are correct. It will therefore be included in the value of her estate for IHT.

Ian_W

I think you also need to get some advice about Stamp Duty. Although you're *only* paying £120K for the property I believe it may be it's valuation on which SD will be assessed. The conveyancing solicitor dealing with the sale should be able to advise.

As far as IHT is concerned, if the estate is only likely to be at or very close to the threshold I wouldn't worry about it too much. The money from the house and the house itself may well be counted in the estate but you only pay tax on the amount above the limit so unless she's got far more than you think it's probably not likely to be a major issue.

I also wanted to say good luck with everything, I'm sure your mum appreciates the support and love she is getting from you.

RiskAdverse100

Stamp Duty Land Tax is payable on the sale price in these circumstances and not the market value. No tax will be payable as the agreed price is below £125k.

RiskAdverse100