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

John_Pierpoint

jimmo wrote: »

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.

Hi jimmo,

How does Gifts Hold Over Relief work?

I know husbands and wives (and legal partners) can give each other assets on a no gain no loss basis, so the tax only crystallises when the asset is sold or disposed of outside of the couple.

Isn't Gifts Hold Over Relief something to do with avoiding double taxation when IHT is an issue?
eg The PET (Potentially Exempt from IHT Transfer) fails to become exempt, because of the 7 year rule?

antrobus

John_Pierpoint wrote: »

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???

The average length of stay in residential care and nursing homes is 30 months. -http://www.thisismoney.co.uk/money/pensions/article-1631659/Long-term-care-a-national-disgrace.html

According to the Department of Health, the average length of stay is around three years for those entering residential homes. Those entering a nursing home are generally much more sick or disabled than those in residential care. Thus, the average length or stay for this group is slightly shorter, at around 18 months to two years. - http://www.is4profit.com/is4money/insurance/long-term-care-insurance.html

So 2 to 3 years would seem to be a good ball park figure. And given that you're talking about the 85+ generation then, yes, I'd imagine that you were predominantly talking about elderly widows.

antrobus

John_Pierpoint wrote: »

....

How does Gifts Hold Over Relief work?

It's described in this document here - https://www.hmrc.gov.uk/helpsheets/hs295.pdf

antrobus

jimmo wrote: »

...
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.
....

The form of words used in the financial assessments for residential care usually are along the lines of;

If a resident deprives him/herself of capital or property for the purpose of reducing liability for payment of his/her accommodation charges, the Local Authority may treat him/her as still possessing it and assess accordingly.

The key phrase is the bit about "deprives him/herself of capital or property for the purpose of reducing liability" - intention is the key, and so I imagine that the proper advice in such circumstances would be to ensure that there were documented reasons for making the gift that had nothing to with care home fees, such as, well, inheritance tax planning.

The Law Society have a Practice Note on the subject -
http://www.lawsociety.org.uk/productsandservices/practicenotes/giftsofassets/3182.article - which is quite informative.

jimmo

John_Pierpoint wrote: »

Hi jimmo,

How does Gifts Hold Over Relief work?

I know husbands and wives (and legal partners) can give each other assets on a no gain no loss basis, so the tax only crystallises when the asset is sold or disposed of outside of the couple.

Isn't Gifts Hold Over Relief something to do with avoiding double taxation when IHT is an issue?
eg The PET (Potentially Exempt from IHT Transfer) fails to become exempt, because of the 7 year rule?

Hi John,
I see antrobus has given you a link to HS 295.
When I was preparing my post at# 29 something in the back of my mind said that a tied cottage will have been a business asset to the farmer who originally owned it.
Therefore when he gifted the tied cottage to his daughter (the OP's mum), the farmer would have been able to claim Gifts Hold Over Relief on a business asset.
Whilst I have precious little experience of dealing with farmers, it is almost beyond belief that a farmer would gift such a business asset without knowing the tax consequences and the tax saving/ delaying opportunity a Gifts Hold Over Relief provides.
Since then I have done a little more digging and have found, not exactly to my surprise, that there are special rules for agriculture.
http://www.hmrc.gov.uk/manuals/cgmanual/CG66960.htm
Moving on to the Inheritance Tax Manual I found this.
http://www.hmrc.gov.uk/manuals/ihtmanual/IHTM24034.htm
Having read those links I would suggest that:
1) It is almost certain that the OP's grandfather claimed Gifts Hold Over Relief when he gifted the tied cottage to the OP's mum.
2) If the OP's mum gifts the tied cottage to the OP and sister then mum will also have the opportunity to claim Gifts Hold Over Relief because it is still a tied cottage.
3) When the OP and sister eventually sell the tied cottage they will realise a Capital Gain based on granddad's original acquisition value or the 31/3 1982 value. However the sale proceeds will provide the cash to enable them to pay.
4) If the OP's mum retains ownership of the tied cottage until death then, if it is still a tied cottage then "Agricultural" relief will be available for Inheritance Tax purposes. I assume, but do not know, that the open market value of the tied cottage will be discounted for Inheritance Tax purposes.
Sadly, as far as I can tell, the key issue is probably who is going to die first, the OP's mum or the tied cottage tenant but I need the OP's answers to my questions in post #29 if I can hope to contribute further.

John_Pierpoint

I wonder who is running the farm now, obviously not the two daughters?

I often wonder if all these tax privileges are counter productive in that they simply force up the value of farm land to the point where a "farmer" cannot afford to buy a farm.

I can think of a small farm of about 40 acres.
There was a three generation family involved:
Grandparents lived "in some squalor" in the historic farm house.
His son managed to [STRIKE]get[/STRIKE] wangle planning permission for a small bungalow, down by the public road.
Grandfather died, trying to do the modern/Latin thing of treating both children equally.
Upshot was farm had to be sold to an (early) retired senior military type - who landscaped 2/3rds of the land into a hobby Arcadia.
The son, still owning 1/3rd of the land, got kept on [STRIKE]as head gardener and zoo keeper for the animals. [/STRIKE]as self employed agricultural contractor.

Now 20 years on the son has "retired", the military officer has died and the farm and its 39 acres has recently changed hands for £ 2 million to someone who is "something in The City" as well as his new status as "farmer".

I expect the great grandfather is spinning in his grave.