Transferring a property from my Mum to my sister and me!

jenp1969

My mum has a property that is let out and she's thinking of giving this to my sister and me now rather than leaving it in her will.

What are the implications of this please?

I know we'd be getting income from the rent which we'd have to pay tax on but it isn't much and I already have one rental property so I'm used to filling in my tax return for this.

I am just clueless when it comes to CGT and stuff. Presumably we don't pay CGT at the time we get the property - just when we sell it??? And we'd pay that anyway wouldn't we even if Mum left us the house in her will?

We wouldn't gain in terms of avoiding inheritance tax as my parents do not have enough to put them over the inheritance tax threshold anyway.

Any other thoughts please re. pros and cons?

ceeforcat

Given that the inheritance tax is an non-issue, the only problem will be CGT. Your mum will have a Capital Gain equivalent to the value at the time of the gift less what she paid for it less the cost of any major improvements. From this figure she would be able to deduct £10600. The balance will be charged at 18% if a basic rate taxpayer or 28% otherwise.

When you and your sister come to sell your gain will be based on the value at that time less the value at the time of the gifting. You would have two annualexemptions to play with though.

John_Pierpoint

How old is mum?
Has mum ever lived in the property as her Principle Private Residence?
Does your mum have a husband?
Is the property registered at the Land Registry?
When did mum acquire the property?
How?
What was it worth then and now?
How much has been spent over the years on improvements (not maintenance)?
Does mum own the house she lives in? If not why not?
Is there any suggestion that mum's health is failing? Now or in the next 5 - 10 years?
How is mum going to survive without the rental income?

JennyP

How old is mum? Late sixties
Has mum ever lived in the property as her Principle Private Residence? No
Does your mum have a husband? Yes
Is the property registered at the Land Registry? I'm presuming so
When did mum acquire the property? Not sure - I think she's had it between 10 and 20 years
How? It was given to her by her father when he was alive

What was it worth then and now? Not sure! I'd guess between 150K and 200K and probably about 100K then - it's complicated because it's an agricultural cottage and has a sitting tenant who we couldn't evict (and wouldn't as her husband worked on my grandad's farm for many years!)
How much has been spent over the years on improvements (not maintenance)? Not much - maybe 5K at most
Does mum own the house she lives in? If not why not? No, dad bought it in his name
Is there any suggestion that mum's health is failing? Now or in the next 5 - 10 years? No.
How is mum going to survive without the rental income? She would manage ok - the rental income is tiny - it's fixed because of it being an agricultural tenancy!

CLAPTON

just to say that cgt is not payable on death; only IHT
so if mum gives the property to you now then she will need to pay cgt subject to the annual exempt
when you sell then you will pay further cgt again subject to the annual exemption

however if you inherit the property on mums death the is no cgt at that time although there may be IHT


so it really all depends upon the numbers
in addition to the question s J_P has asked we need to know what your parents total estate is likely to be worth

JennyP

ceeforcat wrote: »

Given that the inheritance tax is an non-issue, the only problem will be CGT. Your mum will have a Capital Gain equivalent to the value at the time of the gift less what she paid for it less the cost of any major improvements. From this figure she would be able to deduct £10600. The balance will be charged at 18% if a basic rate taxpayer or 28% otherwise.

When you and your sister come to sell your gain will be based on the value at that time less the value at the time of the gifting. You would have two annualexemptions to play with though.

So if Mum just leaves it to me and sister, she never pays CGT and we don't pay inheritance either.

Presumably we'd pay CGT either way one day if we eventually sell it.

If Mum gives it us now, would she have to pay CGT given that she isn't actually realising it as an asset? She didn't buy it - she was given it by her father.

We are basic rate tax payers! I doubt either of us will ever be higher rate

JennyP

I think they'd have about £300 - £400K but that would be the two houses.....and is dependent obviously on property prices.

I asked a solicitor and he said the advantage is that the house cannot be taken away from us that way if mum ever needed care. He said people get £40K per year bills for residential care and the family end up losing all the assets and the children inherit nothing.

Not being greedy here - my mum is very anxious to pass stuff on to us, particularly to my sister who is a lot younger than me, doesn't own her own home and I doubt she'll ever amass enough cash for a deposit on her own! Despite her being a very hard-working young woman!

JennyP

Sorry, I should have explained. I am the OP - I was locked out of my original account for a while due to a computer glitch and started a new one!

CLAPTON

cgt is payable on the disposal of an asset; giving the asset away (except to spouse) is a disposal for cgt purposes so yes she is liable for cgt if she gives you the property
A significan issue is how the property is to be valued: I've no idea about agricultural property.. are there special rules about selling them?

JennyP

Could the CGT liability be reduced by her gifting 50% of the house to me one year and then 50% to my sister the next year?

I'd get my half first, naturally! I'm older!

John_Pierpoint

Yes mum will be showing a capital gain on the value of the cottage during the time of her ownership.
The value of the cottage is perhaps half of what it would be on the open market because of the sitting tenant.
Does it have on agricultural occupancy restriction too?
Is this a seriously agricultural place or a "horseyculture" city fringe playground for rich people?
The care home fees spent by the local council is more likely to be attached to dad's place than mum's?
Probability of mum and dad needing to go into a care home is something like 1 in 4.
Do you all live locally, and so able to look after each other and organise care in the parents home?
A married couple currently get £650,000 nil rate band for InHeritance Tax (IHT) - ie 325K each combined is the first to die leaves everything to the second.