What Tax Liabilty

artey

My wife is joint named in her Mothers will along with her sister, her Mother is still alive.

My wifes sister has offered to buy out my wifes part in the sum of around £150,000 which would be a reasonable amount and acceptable.

However, what would be my wifes tax liability on this amount, she pays tax at the higher 40% rate.

Would it be classed as income for the tax year.

noh

It makes no sense.
Your wife has nothing to sell until the mother dies and probate is completed.
The value of the estate may be very different then or the will could have been changed.

artey

It makes perfect sense, my wifes sister is willing to pay my wife £150,000 now on the understanding that the will is changed in her favour. The sum would potentially allow my wife to pay off her mortgage and retire. Oh and it only applies to the value of the property and not other items or bank accounts etc

noh

It makes no sense whatsoever. There is nothing to sell.
The sister could loan your wife the money or gift it.

However in answer to your original question no income tax would be due.

CTA_2

artey wrote: »

It makes perfect sense, my wifes sister is willing to pay my wife £150,000 now on the understanding that the will is changed in her favour. The sum would potentially allow my wife to pay off her mortgage and retire. Oh and it only applies to the value of the property and not other items or bank accounts etc

Hmmm, tough one. Really, there isn't a contract here as there isn't any consideration on part of your wife?

At present, she doesn't have an asset. She has no legal right over anything (or beneficial right) as the will can be changed, no rights have vested.

I would say any cash given for the "promise" would be in the form of a gift. If it is a cash gift, then there is no CGT as Sterling is not a chargeable asset.

The gift would be a potentially exempt transfer from IHT. But if the sister dies within seven years of making the gift, then it may become chargeable depending upon the availability of the nil rate band.

Really tough one! I am not a contract lawyer and i think that question needs answering first.

CTA_2

As stated above, such a transaction would not be in the form of income and therefore not chargeable to income tax.

artey

Other comments on the tax issue would be welcomed

CTA_2

artey wrote: »

Other comments on the tax issue would be welcomed

see above

artey

Thanks CTA, thats helpful. There would obviously be some agreement drawn up between my wife and her sister, but the implications of "if the will was changed by her mother to remove her sister from it" would be a very complicated affair.

CTA_2

artey wrote: »

Thanks CTA, thats helpful. There would obviously be some agreement drawn up between my wife and her sister, but the implications of "if the will was changed by her mother to remove her sister from it" would be a very complicated affair.

Yes, very complicated! Will-related matters usually are, my wife's matters particularly so!

Alternatively, if your wife inherited the 50% of the property and then sold it to sister, there would still be no CGT as wife would inherit a base cost equal to probate value.

IHT would be the same as the same value would pass. Peculiar way of structuring this but fun to consider (in my mind anyway).

McKneff

What happens if Mother has to go into care, runs out of money and her house has to be sold to pay for her care.

or

Mother falls out with them and leaves the house to the local Dogs Home.