Tax Liable on a property sale ???

lentrix92

Unsure on the following tax implication...

A friend of mine has asked but im unsure so i though i would ask!

Scenario is: Grandparents bought their council flat. Their children raised themoney and paid for the purchase. The agreement was that when the grandparentsboth died the flat would be sold and the funds split 50/50 and then theproceeds would be passed on the children’s children (grand children)...

Both grandparents have now passed away and the flat is about to be sold withthe proceeds (well within inheritance tax limit) being passed onto the(grandchildren). However both grandchildren already have homes therefore whatare the tax issues if the money goes directly to the grandchildren ??

Do the parents have (now both retired) have to receive the money first and then'gift' the cash ?

Any help most appreciated

nomunnofun

When you say that 'the children raised the money and paid for the purchase' do you mean that the property is in the name of the children? I presume there are two children?

If the property was in the grandparents' names, the situation is less complicated as it would appear that the property was left to the children who subsequently will sell the property and gift the proceeds to the grandchildren. As a result there would be no tax payable by the grandchildren as there is no tax on gifts in the UK. The proceeds would form part of the estate of the children upon each of their deaths, however, should they not live for seven years after the date of the gift. The children may also pay capital gains tax if they somehow manage to sell the property at a substantial price above the value at the time of inheritance.

But we really need the answer to the question in my first paragraph.

CLAPTON

presumably the property was owned by the grandparents and so is part of their estate


if so then it will be valued for probate as current market value.


if it is then sold it is potentially liable to capital gains tax on the GAIN in value over probate.

However in the current housing market this should essentially be zero:

lentrix92

nomunnofun wrote: »

When you say that 'the children raised the money and paid for the purchase' do you mean that the property is in the name of the children? I presume there are two children?

If the property was in the grandparents' names, the situation is less complicated as it would appear that the property was left to the children who subsequently will sell the property and gift the proceeds to the grandchildren. As a result there would be no tax payable by the grandchildren as there is no tax on gifts in the UK. The proceeds would form part of the estate of the children upon each of their deaths, however, should they not live for seven years after the date of the gift. The children may also pay capital gains tax if they somehow manage to sell the property at a substantial price above the value at the time of inheritance.

But we really need the answer to the question in my first paragraph.

The property ,i think, remained in the grandparents name.
Am i right in saying that the money can't go straight to the grandchildren - it must go via the parents first? Otherwise there is an issue ?
Also if the parents did gift the proceeds but then died within 7 years - what would happen then tax wise ?

nomunnofun

I am a liitle confused.

1) It is absolutely fundamental to establish in whose names the property was at the time of the grandparents' death.

2) To whom the money goes depends on the will and who owns the property as in 1) above. If the property is in the grandparents' names, it goes to the children who, presumably, sell it and give the proceeds to the grandchildren as you have said. If the house is owned by the children, however, there are capital gains issues for the children.

3) I have previously stated that the proceeds would form part of the children's estate if they died within seven years of making the gift. If this takes the value of the estate beyond £325000 the estate will incur tax tax charge on the excess.

CLAPTON

Ownership is key.

What the will (if any ) says is fairly important.

But even if it goes to the parents (either through intestate rules or the will) then the parents can, via a deed of variation, give it directly to the grandchildren.
This avoids any future IHT problem should the parents die within 7 years (assuming of course that the parents' estate will be liable to IHT).


What age are the parents ; are they is good health; are they likely to be above the IHT allowance if they die tomorrow?

lentrix92

Parents are early 60's (retired women) - and in gd health as far as i know.

The property was left to them via a will

CLAPTON

Well, as the property is now jointly owned by the two siblings they can simply sell the property and choose to give the money to their own children.

The only tax issue is the potential for IHT is one of them dies within 7 years. Whether this is an issue depends upon their own circumstances (their own wealth, spouse etc)

Alternatively they can make a deed of variation (probably need a solicitor) so the money passes directly to the grandchildren and so it never becomes part of the siblings (parents) estates.

lentrix92

what would happen if the funds were paid directly to the grandchildren instead of going via the parents first.

Sorry for asking so many questions - just want to be clear. thx

CLAPTON

lentrix92 wrote: »

what would happen if the funds were paid directly to the grandchildren instead of going via the parents first.

Sorry for asking so many questions - just want to be clear. thx

I don't understand your question

The parents are the legal owners of the property.
Other than by a deed of variation, how can the funds go to anyone other than the legal owners?
Who is going to give the money to anyone else?

A deed of variation is the legal method of bypassing the parents... why are you unhappy about that?

nomunnofun

lentrix92 wrote: »

what would happen if the funds were paid directly to the grandchildren instead of going via the parents first.

Sorry for asking so many questions - just want to be clear. thx

I could be wrong but I think (but only think) I know what you mean. Are you enquiring whether there is a difference if a) the proceeds of the house sale is paid to the parents before gifted to the children and b) if the grandchildren, for some reason, received the sale proceeds directly from, presumably, a solicitor? If this is what you are asking, the answer would be no, no difference or implications.