CGT/IHT on gift of flat from a PPR conversion

simonto

Hi

My mum is looking to convert her house into two flats so my wife and I can own one whilst she owns the other. Currently we all share the house and she owns it outright. Initially we thought to buy 50% from her at market value and then jointly fund the conversion before splitting the deeds and taking one flat each. However, I believe my mum would need to pay income tax on selling a 50% share due to POA legislation(?) So alternatively, we considered providing the funding for the conversion, letting my mum convert under her name and then she would 'gift' one flat to us and keep the other. The gift would be without reservation as she would have no need to use it. We understand that it should count as a PET and be removed from her estate after 7 years. (The estimated value of the flat at £250k max would be below the nil rate band). I have a few questions though:

1 - Would the gift scenario work?!
2 - If we are gifted a flat but pay for some of the conversion (or simply provide my mum with a loan) could we deduct the value of that loan from her estate if she were to pass away before 7 years are up?
3 - If she gifts us a flat, it would technically be from her main residence - would PPR relief from CGT apply to the gift or would she be forced to pay CGT?

We are keen to seek professional help on this but would like to know where we stand before doing so! Thanks

Toni_Tax

However, I believe my mum would need to pay income tax on selling a 50% share due to POA legislation(?) - No, only if she sold 100% to you for less than it was actually worth but continued to live there at less than market value rent

This is quite a complicated area and I would advise you get some expert advice.

Sorry I cant be of more help.