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

ceeforcat

In a recent ancillary relief case with which I was involved, the sitting tenant was the 90 year old mother of the applicant - property value was reduced by 40%.

JennyP

Wow....
One thing I don't understand is why if I own a house, I'm not entitled to let someone live in it free e.g. my mother. I know there'll be people who will post on here saying that if I don't have a tenancy agreement and needed to evict here I wouldn't be able to....true. But assuming I wasn't bothered, couldn't I let whoever I want live in my house rent-free? The solicitor said I'd need to get my mother to pay the going rate. Why would that be the case?

Savvy_Sue

I think that if you buy the house yourself, you can indeed do what you like with it.

However, I believe that if your mother GIVES you a house, and you allow her to live in it rent free, then the taxman assumes that this was done as a tax avoidance measure. Which, generally speaking, was the intention ...

JennyP

Oh I see! Thanks Sue. That explains the difference.

John_Pierpoint

JennyP wrote: »

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...

Is this really a discretionary trust, and not a life interest/interest in possession/fixed interest trust in favour of your mother?
You probably don't need a discretionary trust any more, now that we have transferable nil rate bands for husbands and wives and a discretionary trust normally names a class of people, such as "the descendants of the deceased and it has a time limitation (probably 80 years in the case of your father's will). If there are any descendants (or potential descendants) aged under 18, it can be difficult to break the trust, as these minors cannot forego their inheritance, without a court ruling.

John_Pierpoint

JennyP wrote: »

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...

Is this really a discretionary trust, and not a life interest/interest in possession/fixed interest trust in favour of your mother?
You probably don't need a discretionary trust any more, now that we have transferable nil rate bands for husbands and wives and a discretionary trust normally names a class of people, such as "the descendants of the deceased and it has a time limitation (probably 80 years in the case of your father's trust). If there are any descendants (or potential descendants) aged under 18, it can be difficult to break the trust as these minors cannot forego their inheritance, without a court ruling.

JennyP

John_Pierpoint wrote: »

Is this really a discretionary trust, and not a life interest/interest in possession/fixed interest trust in favour of your mother?
You probably don't need a discretionary trust any more, now that we have transferable nil rate bands for husbands and wives and a discretionary trust normally names a class of people, such as "the descendants of the deceased and it has a time limitation (probably 80 years in the case of your father's trust). If there are any descendants (or potential descendants) aged under 18, it can be difficult to break the trust as these minors cannot forego their inheritance, without a court ruling.

Yes, it really is a discretionary trust!
There are no descendants under 18. I have given up on having kids (42 and STILL not met Mr Right .... sigh!) and my sister doesn't want them.
Is there any harm in leaving it as a discretionary trust?
I am tempted to leave well alone really - just leave Mum's house in her name and then let Dad's house pass to us in the discretionary trust and let mum stay there. What do you reckon?
Have told mum she can't go into a home and we'll look after her, and she can live with whichever one of us she likes, though I am going to invest in a tarantula as a pet! So I guess she'll choose my sister!

jimmo

Sorry if this seems an odd question but is your mum's husband your dad?
What's puzzling me is that in post #14 you refer to a discretionary will trust that your father set up a few years ago but go on to say that he left his house to you, implying he is no longer with us.
What I am really failing to understand is whether the house your mum lives in is actually owned by a human being and is intended to become a trust asset when that human being dies, or is it already a trust asset, and therefore, as I understand it, already protected from being taken to pay care home fees.
I am definitely no expert on Deprivation of Assets but if the house your mum lives in is protected, common sense suggests that the powers that be will then focus on the let property that your mum currently owns and if she gifts it to you and your sister there is a very real danger that the deprivation of assets rules will kick in ant the powers that be will want their pound of flesh out of the value of the let property.
Coming now to Capital Gains Tax, where I claim to know a thing or two, I would strongly suspect that when your grandfather gifted the let property to your mum he will have claimed Gifts Hold Over Relief. The practical effect of that would have been that your grandfather would have paid no Capital Gains Tax on his disposal but your mum would be deemed to have acquired the property at your grandfather's original acquisition value.
If your mum gifts the let property to you and your sister then her gifting a half share to you in one tax year and gifting the other half share in the following tax year will very definitely be more (Capital Gains) tax efficient than gifting the whole property in one fell swoop because she can take advantage of 2 annual exempt amounts rather than 1.
However, as mentioned above, if the sitting tenant dies the open market value of the let property will more or less double overnight.
To me, if the family is absolutely confident that when your mum dies there will be no Inheritance Tax liability it would be an absolute nonsense for mum to incur a Capital Gains Tax liability.

John_Pierpoint

JennyP wrote: »

Yes, it really is a discretionary trust!
There are no descendants under 18. I have given up on having kids (42 and STILL not met Mr Right .... sigh!) and my sister doesn't want them.
Is there any harm in leaving it as a discretionary trust?
I am tempted to leave well alone really - just leave Mum's house in her name and then let Dad's house pass to us in the discretionary trust and let mum stay there. What do you reckon?
Have told mum she can't go into a home and we'll look after her, and she can live with whichever one of us she likes, though I am going to invest in a tarantula as a pet! So I guess she'll choose my sister!

I am not an expert on anything, least of all trust, but they can become a benefit system for lawyers. The interplay of the words of the trust, the law of the land and changes in tax rules can become fiendishly complicated.

When it comes to getting your hands personally on the assets of the trust I think you might be relying on Saunders v Vautier (1841) and intending to prove that you and your sister are the last remaining members of the "Jenny P" family, this side of the date the trust sets for its demise. Traditionally male beneficiaries of the trust had to die to prove that and female ones had to reach the age of 55.
I don't know if modern reproduction technology has made any changes to these assumptions.
This in not quite as awful as it sounds as the trust probably has the ability to lend you assets, interest free, that you don't have to repay until you die. [after all you cannot take them with you].
I expect you solicitor, for a fee, would be happy to explain exactly what the discretionary trust means in your particular case. You need to look at the trustees "powers of appointment" if you have a copy in your possession.

Perhaps dad's will is trying to "nudge" you and your sister;)

John_Pierpoint

antrobus wrote: »

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.

It only requires one of the two parents to need long term care, especially if it is dementia, to throw a metaphorical hand-grenade into the family finances, hence the 1 in 5 risk.

Having said that, I believe the typical occupant of a care home is an elderly widow and the average length of stay is about 2 years or so???

I had the task of checking out care home fees. So I looked at chain with branches all over the country:
South West London was really expensive.
Essex (near me) was 2/3 rds of the price.
Lincolnshire (near my sister) was 1/3rd of the price.

So I would expect Lancashire / Yorkshire to be more reasonable and what is more the staff might speak intelligible English.