Parent living rent free in childrens house

andybeedub

Hi All
Me and 3 siblings jointly own mothers house as my Father gifted us the property before he died (none of my parents houses over the years were in joint names only my fathers), the house came under the IHT level. I sorted out probate and this was all satisfactory in 2003. Since then my mother has lived in the property rent free, (the house remained in our joint ownership and none of us has lived there as our primary residence)
My mother is now buying a retirement property using capital from her savings.
Once she has settled in and happy we will either rent the house to tenants or sell.
My question relating to tax.
Firstly as there has been no income from my mother over the 10 years there has been no tax paid. I presume that there is no law stating that my mother must pay rent or that we should still pay tax on a market rent rates?
If we sell I expect there will be CGT , which will vary individually.
My mother will have no tax liability on the property?

many thanks for any help, suggestions or advice
Andy

InMyDreams

How long before he died did your father gift you the house? Or do you mean he left it to you in his will? Did he gift you the house and then live in it rent free while he was still alive?

I would be interested in the experts' views on this too, but my layman's understanding is that it only gets complicated if a parent gifts a house but continues to live in it. That's when you might have to pay income tax based on market rates, even if no money changes hands. But even that is only to show that it isn't a gift 'with reservation'. But if the value of your dad's whole estate (including the house) was under the IHT level, then it wouldn't matter even if it was a 'gift with reservation' if when 100% included with the estate it still came under the IHT level anyway.

If the house never belonged to your mother, I don't think there is any tax issue for her, but yes, you'll need to look at the CGT liability for the four of you children. But that will only be payable on any rise in value from what it was in 2003 and what you sell it for, and you'll each have your annual exempt amount that you can use towards your share.

G_M

I'm not an expert either but believe:

andybeedub wrote: »

My question relating to tax.
Firstly as there has been no income from my mother over the 10 years there has been no tax paid. I presume that there is no law stating that my mother must pay rent or that we should still pay tax on a market rent rates?correct
If we sell I expect there will be CGT , which will vary individually.correct
My mother will have no tax liability on the property?correct

many thanks for any help, suggestions or advice
Andy

moneyistooshorttomention

On a different tack - because your mother wasnt left her own house (ie it being the norm for a husband to leave the joint marital home to his wife) then its probably been very hard for your mother to have to "start all over again" because of this unusual Will your father made. I would imagine that legally (as well as morally) your mother could put in a claim for her half of their house.

Just thinking it would be a nice thing if you and your siblings could help your mother out financially to help compensate her for the fact that she wasnt left "her" half of the house by your father?

theartfullodger

Just in case HMRC come after you (unlikely but possible..) having assessed your tax liability on the basis of market rents (perhaps having been tipped off by unpleasant neighbour..) I'd want to be very sure that I had a good paperwork trail & evidence of there being no rent paid.. (So don't throw paperwork away..) Was any written occupancy agreement made (? hope... but doubt..?). Proving something isn't is a bit like trying to prove there aren't little green men on mars.. you can't.

Sadly HMRC are suspicious due to wicked persons claiming one thing.. (nah guv, me cousin lives there rent free innitt!..) when actually getting cash-in-claw rent..

Hope you got a number of written property valuations when probate was granted as a start-point to CGT calculations : (The probate valuation might be lower than market... shame to pay tax unnecessarily..)

Think money's idea a good one - but expect you've already thought of that...

Cheers!

00ec25

moneyistooshorttomention wrote: »

On a different tack - because your mother wasnt left her own house (ie it being the norm for a husband to leave the joint marital home to his wife) then its probably been very hard for your mother to have to "start all over again" because of this unusual Will your father made. I would imagine that legally (as well as morally) your mother could put in a claim for her half of their house.

that would be an incredibly foolish thing for her to do
actually the father was really quite astute arranging it the way he did for the following reason:
the house was ONLY in the name of the father for the entire time they lived there as a married couple
he signed it over to their children
she continued to live there rent free after his death

had she ever been an owner of it then the fact she continued to live there rent free in a place she did not by then own (but had in the past) would mean she would fall into the pre owned asset rule making her liable for income tax on the rent she should have been paying
http://www.hmrc.gov.uk/poa/
father's arrangement has avoided that risk, so well done dad
obviously the children are liable for CGT themselves though from the date of transfer from the father

andybeedub

00ec25 Thanks for your response, Dad was advised by local solicitor and as his health was not brilliant he probably envisaged the situation where Mum would continue to live in the house much much longer than the usual.
It appears that we have no tax liability till we sell or rent, which is as I reckoned/hoped
RegardsAndy

andybeedub

what a ridiculous msg, of no useful content and quite upsetting, did you not read the MSF newbie box be nice to me, I'm really quite miffed by your meddling on a subject you have no idea about and you are giving 'advise' on an aspect unrelated to my original post

ValHaller

andybeedub wrote: »

what a ridiculous msg, of no useful content and quite upsetting, did you not read the MSF newbie box be nice to me, I'm really quite miffed by your meddling on a subject you have no idea about and you are giving 'advise' on an aspect unrelated to my original post

At whom is that directed? I am puzzled.

InMyDreams

ValHaller wrote: »

At whom is that directed? I am puzzled.

An inappropriate post that has since been removed by moderators, I would guess.

ValHaller

InMyDreams wrote: »

An inappropriate post that has since been removed by moderators, I would guess.

Quite probably. It would leave a more friendly atmosphere if OP had left a clue as to whom it was directed at rather than wondering if it was directed at anyone whose post remains.