Inheritance Tax / Capital gains Tax

thirtythree

First of all I hope this is in the right section, I think it possibly isn't, so apologies for that.

Hello all

I am hoping for some advice, please, on what is - at least to my brain - a complicated issue regarding inheritance tax, or possibly capital gains tax.

Here is the story:

A few years ago, my father in law signed over his property to my husband and his 2 brothers. Since one of them wanted to live there, it was agreed that he would buy the other 2 brothers out, and the property was valued and agreed at being worth £300,000. Therefore, each brother would be paid £100,000. A legal document was drawn up to that effect, and the method of obtaining the money was via the sale of their current property.

Initially, £30,000 was paid to each brother leaving a further £70,000 each to be provided for by the sale.

My question is this. We are just about to receive our share of the money which is £60,000 (by mutual agreement, 10k less than agreed since he cannot acheive what he had previously hoped for the house) Do we pay any sort of tax on this yet? My assumption was that when the father in law passes away, we will pay inheritance tax on it should that happen within 7 years. But is it 7 years from when the house was signed over into the 3 names, or 7 years from us actually receiving the funds?

Secondly - is the brother who is selling his property to fund the inheritance of the other 2 brothers liable for capital gains tax? * Or is he in the same position as us, and only liable for inheritance tax at some point in the future?

I really appreciate anyone taking the time to read this, particularly if you can shed some light on this. Thank you in advance.

* Edit to add: he has been renting out this property for the last 5 years, whilst living in the father in laws house, if that affects anything.

getmore4less

THere will need to be a CGT assesment on the rental.

There will need to be a CGT assement on the transfer of your share to your brother.

CLAPTON

putting in the years or so would make it all a bit easier to understand

so the FIL house was gifted at no consideration to his three sons over 7 years ago
did/does the FIL still live there
what names are on the deeds ? (and when)
was the agreement of one of the brothers to buy out the others made when the house was gifted or later ?


if the brother selling his former residence sells after 3 year of non residence then he is liable to cgt on the sale (which may in practice be zero)

thirtythree

CLAPTON wrote: »

putting in the years or so would make it all a bit easier to understand

so the FIL house was gifted at no consideration to his three sons over 7 years ago
did/does the FIL still live there
what names are on the deeds ? (and when)
was the agreement of one of the brothers to buy out the others made when the house was gifted or later ?


if the brother selling his former residence sells after 3 year of non residence then he is liable to cgt on the sale (which may in practice be zero)

The house was signed over in January 2007. At this point the FIL moved out.
No, he does not live there any more.
I am not sure whose names are on the deeds, I believe it to be my BIL and his girlfriend's. This would have been done at the point we signed to agree the house being sold to them.
The agreement was made within a few months of the house being gifted.

Hope that helps and thank you for the responses.

Can I ask what you mean by "may in practice be zero"?

CLAPTON

the second easy bit first

if you sell your own home ... i.e. your principal private residence PPR in the normal way it is free of cgt.
however if you sell your former (PPR) home after a period of absence whilst living elsewhere (i.e. renting or just empty) then cgt applies; however you have various exemptions (last 3 years and letting relief) and a cgt allowance of 10,600 so in practice there may be no tax to pay. To work that out needs the buy price, the selling price, date of purchase and sale, period of residence, period of letting etc.


first bit then
so the house was given to the three offspring in 2007 and immediately 'sold' to one of the brothers by the other two?
in my view there would be no tax to pay as the two brothers made no profit.

however, there is a potential IHT issue as the gift is only 4 years ago.

thirtythree

I think I understand. They (ie BIL and girlfriend) bought the house around 20 years ago, I think. I have no idea how much for, but they lived there until about 4 years ago, and have rented it out for the last 2 approx.

Anyway, it looks like he won't pay any, but I was fascinated how it all worked, so thank you.

As far as IHT goes, I believe having looked it up that the estate will fall below the threshold when the time comes, so that should (hopefully) not be an issue.

getmore4less

There might also be SDLT to consider on the transfer of the 2 shares since these were going to be for a considertion of £200k

If the house was worth £300k at time of transfer that only leaves £25k of nil rate band for the rest of his estate for 7 years.