Giving away/selling second home (inherited)

Whippy1980

My nanna died 4 years ago and her house automaticaly went to my mother. At this time me and my family were desperate for a home so we were able to move in. My mam remortgaged her home so we could extend this house to accomodate our children. The house was worth around £75000 at that time but there have been around £25000 worth of improvements made since.

What does this mean if i want to buy it from my mother or if my mother wanted to 'give' this house to me? My mother is retired so is fearful of huge tax bills. What is the best way forward?

BigAunty

if she gives it away, she should also be fearful of 'deprivation of capital' if she requires a care home or wants to receive means tested benefits like pension credit, council tax benefit and so forth. This covers rules that try to prevent people with means from giving away their capital (savings, investments, properties) and then claiming income related benefits. Google the term.

Other posters can tell you about the Capital Gains tax she may have to pay selling the property to you - how long has it been rented out for?

00ec25

Your mother would face a capital gains tax liability because this is not her main home. The gain will be the difference between its probate valuation and its value at the time she sells it or gifts it to you. Because you are related the value used must be the full open market price, ie the price she would sell it to a stranger, she cannot undervalue it as a discount to family. Note some wil argue that you are a sitting tenant and therefore the open market value should reflect this, HMRC will counter argue the value should be that for a sale with vacant possession not with a sitting tenant. That sort of argument may only be settled if you and HMRC end up at a formal valuation tribunal dispute. It is best that mother gets 3 valuations from estate agents and takes the average of thsoe 3 to show she has used market value - deciding how much to knck off the EA 's suggested asking price to reflect the expected actual sales price is also an area of some discussion....

OK let’s keep to the simple case first – how much has the house gained in value in only 4 years? Your mother is entitled to a gain of 10,600 tax free so if the gain is <10,600 CGT is irrelevant anyway

If gain is >10,600 then we need to consider the improvements. If mother paid 25k on improvements and all of that work meets the definition of a qualifying improvement (ie was not a repair of an existing item) then she can reduce her CGT liability by 25K, eg lets say it is worth 100k now, her purchase price was 75K so the gain is 25k and she then deducts the costs of improvements so 25 – 25 = 0 so she has no CGT liable gain even before she needs to call on her £10,600 allowance.

As said by others, mother should not ignore the deprivation of assets rules – if she gifts it or sells it at a discount then she is depriving herself of an asset. If on the other hand you pay full market value then clearly she has not lost an asset as she now has the full value in money – but if she then gives that money away she would be back to square one on the deprivation rules

DVardysShadow

Off the top of my head, I would say buy half as joint tenants with your mother - not tenants in common. I am thinking this will freeze a capital gain to this point and attract a CGT allowance. plus it will reduce the size of asset on which CGT will be levied.

Don't just go ahead and do this - check it out properly

Whippy1980

well an estimate valuation put the house at £95k so an increase of 20k. I would have thought the money she put into house improvements would be a minimum 25k as the house gained a loft conversion, new fitted kitchen, fitted bedroom, wall and ceiling insulation and a new fitted bathroom.

I have to admit i am finding it difficult following you all as this is my first experience of such things but if i understand correctly there is a chance my mother may avoid cgt??

I do want to own this house outright so sharing is not a option.

Thanks for the replies by the way!

RAS

What you have to understand is that if your mum gives you the house, she will get into a lot of bother.

Can you afford tio buy it?

CLAPTON

1. basically if the house was worth 75,000 (was that the probate figure?) and is now worth 95,000 but has spent 25,000 on improving the property then there is no capital gains tax payable.

from a cgt point of view there is absolutely nothing stopping your mother giving you the house.

2. deprivation of assets is all about your mother needing state benefits if she went into a care home.

whether that is relevant largely depends upon her age and her other assets (property) and her income

CLAPTON

RAS wrote: »

What you have to understand is that if your mum gives you the house, she will get into a lot of bother.

Can you afford tio buy it?

why is that?

unless the mother is old and likely to need a care home soon and has no other property and little income then there is no reason why the house can't just be given

Whippy1980

My mother is 65 years old. Hopefully has many years left in her yet!!

Whippy1980

whether she gives me it or not i will have to repay her 35k for the remortgage she got out on her own home for our improvements.

My thoughts were to get a mortgage for 50k, pay her off and use the rest for holidays and car!!

Fire_Fox

Whippy1980 wrote: »

whether she gives me it or not i will have to repay her 35k for the remortgage she got out on her own home for our improvements.

My thoughts were to get a mortgage for 50k, pay her off and use the rest for holidays and car!!

That would be a very expensive holiday and car over the lifetime of the mortgage! If it wasn't for the house would you borrow £15K at a variable APR over 25 years and be happy to have nothing to show for it at the end of the day?

Have at least three valuations done and specify to the agent you want the value of a quick sale, not the value of sitting around waiting for a buyer for six months. Who is going to pay all the legal costs of the initial remortgage and your purchase?