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

JennyP

Another question... this is something I've never quite understood.

Ignoring the Inheritance Tax allowance for the sake of simplicity. If someone inherited a property and had to pay inheritance tax on that property to the tune of being taxed on £200K....when they sell the property, do they have to pay capital gains tax on the full amount of what the property is worth? So if it's gone up and is now worth £250K, do they pay capital gains tax on the full £250K or just on the difference between what it was worth when they inherited it i.e. £50K ?

This has an impact obviously on our situation....

Say it was worth £100K when mum first got it, and it's gone up £80K since mum's had it. She'll pay CGT on the £80K.

If we get it and it goes up another 30K, do we pay capital gains tax on the full amount we sell it for i.e. £230K or do we just pay on the difference between what it was worth when we got it and what it's worth when we sell it?

If it's on the full amount i.e. £230K, wouldn't that mean the family were basically paying two lots of CGT on one asset?

CLAPTON

cgt is based on the GAIN i.e. the difference between its value when disposed of and the value when acquired

so your mother would pay cgt on the 80k and you would pay cgt only on the 30k so you are not taxed twice

similarly with acquisiton on death; you only pay cgt on the diference between the sale price and the valuation for IHT purpose (less costs and allowances) so 50k in your example

JennyP

John, you are fantastic! Do you do this for a living?

If the value of the cottage is half what it would be, does that mean that for CGT the lower value would count? It is such a tight tenancy agreement, that it would be faily impossible to evict the tenant. I think she has rights to live there till she dies. I think once she is no longer in residence, it becomes a normal cottage again as the family farm no longer exists.

Does it have on agricultural occupancy restriction too? Not 100% sure
Is this a seriously agricultural place or a "horseyculture" city fringe playground for rich people? No, it's agricultural!!!! Good solid lancashire farming land (said with pride from someone living in Yorkshire now!)

The care home fees spent by the local council is more likely to be attached to dad's place than mum's? But if mum owned a second property, they'd surely take that too!

Do you all live locally, and so able to look after each other and organise care in the parents home? No, my sister and I live 70 miles away. I doubt either parent will need care....based on looking at them now and what grandparents were like...but you never know.

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. Yes, realised that. The discretionary trust will my father had set up a few years ago is now redundant presumably - he left his house to us but in trust so that mum could stay there as long as she likes...

In practice, we are very lucky because mum can give us the house knowing that if in future she needed money, we would give it to her and we're both responsible and wouldn't go out and blow the money on new cars and posh holidays. I don't see my sister and me ever falling out over who has what either so mum could gift one of us 50% one year and the other the next year without any falling out.

JennyP

If mum then needed help with her CGT bill, could I then pay it? Or does that count as buying it off her?

In summary, as a family, we pay more in capital gains from transferring the house now rather than waiting to inherit it don't we? If we inherited, we'd just pay CGT on the gain between inheriting it and selling it and we wouldn't pay inheritance tax at all? So if we inherited and sold straight away there'd be nothing to pay (as parents are under the allowance?)

Could someone please enlighten me as to whether we'd pay any less CGT by transferring half to me now then half to my sister next year?

No-one has come

le_loup

JennyP wrote: »

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.

Take this with a large pinch of salt. Look up "Deprivation of Assets".

Savvy_Sue

JennyP wrote: »

In practice, we are very lucky because mum can give us the house knowing that if in future she needed money, we would give it to her and we're both responsible and wouldn't go out and blow the money on new cars and posh holidays. I don't see my sister and me ever falling out over who has what either so mum could gift one of us 50% one year and the other the next year without any falling out.

You may both be highly responsible people, however once the property has been given to you, it's yours. And that means that if either of you marry, and then fall out and divorce, the value of your half of the house has to be declared as one of your assets. And if it's not an amicable divorce, life could become interesting.

JennyP

Savvy_Sue wrote: »

You may both be highly responsible people, however once the property has been given to you, it's yours. And that means that if either of you marry, and then fall out and divorce, the value of your half of the house has to be declared as one of your assets. And if it's not an amicable divorce, life could become interesting.

I know....sorting out my divorce from 7 years ago STILL! Even though it was amicable....

I suppose that's another factor. I am unlikely to marry again and my sister is sworn off it too but if Will Smith were to become single, I might change my mind!

antrobus

John_Pierpoint wrote: »

...
Probability of mum and dad needing to go into a care home is something like 1 in 4....

Not quite.

The chance of living in a long-stay hospital or care home is 1% for people aged 65-74 years, 4% for people aged 75-84 years and 18% for people aged 85+. (Laing and Buisson, Care of elderly people: UK market survey, 2006)

See http://www.independentlivingresource.org.uk/ilrop-definition-factsandfigures.html

Or to put it another way; there's something like a 1 in 5 chance that you'll need to go into a car home if you make it to the age of 85. However as far as anyone in their "late sixties" is concerned there's something like a 1 in 2 chance that you won't make it. So the actual probability of 'needing to go into a care home' would be more like 1 in 10.

John_Pierpoint

Yes I agree we need the figures for those who go off to the great care home in the sky and at what age.
These sort of calculations sadly need to be made by all of us - I remember back when I was 28 and redundant, having to decide what to do with my pension (now paying at £4.5K a year) and working out that I had one chance in 25 of not collecting it - as I had a spouse & potential child, it was a no brainer - but had I been single the calculation would have been more difficult.)

So if there are two of you at risk that is 1 in 5 ?

Perhaps we also need to know the age of the sitting tenant? [Seriously I've also had to make that calculation with a set of actuarial tables. - a bit like the 122 year old woman who sold her house to a solicitor in exchange for an income when she was only 90 ish, on the understanding she could see out her days with the benefit of the property].

In her later years, she lived mostly off the income from her apartment, which she sold cheaply more than 30 years ago to a lawyer, Andre-Francois Raffray.
He had agreed to make monthly payments on the apartment in exchange for taking possession when she died, but never got to do so. He died more than a year ago at 77; his family was required to keep making the payments.


http://lubbockonline.com/news/080597/frances.htm


http://en.wikipedia.org/wiki/Jeanne_Calment

antrobus

John_Pierpoint wrote: »

....

So if there are two of you at risk that is 1 in 5 ?

Yes, if I recall my stats correctly, if there are two of you, the probability of either needing a care home would be 1 in 5, but the probability of both would be 1 in 100. And of course we're talking about things that might happen in 15 to 20 years time as opposed to now.

John_Pierpoint wrote: »

Perhaps we also need to know the age of the sitting tenant?

One would certainly have to think about that. I'd assume that the value of the property in question would be higher without a sitting tenant, so that in the circumstances one might want to transfer the property before it became vacant.