receiving a house as a gift

anesta

Hi, my mum died a couple of years ago and she left everything to my dad. As a result he now owns two houses (one which his main residence and now another which was the main residence of my mum). He is thinking of changing her will so that my brother and I become the owners of the house that, for tax purposes, is NOT his main residence. I don't know or understand all the implications, so I have a couple of questions, if anybody can help!
1. If I become the owner of half that house, would I have to pay some tax because I would then own or have a stake in 2 properties (one I will half own with my brother and half that I own with my wife)?
2. Could I decide to sell my half (or the whole house if my brother agrees) with no adverse tax implications for my dad?:eek:
My dad is actually still living in the house.
Many thanks.

holly_hobby

anesta wrote: »

Hi, my mum died a couple of years ago and she left everything to my dad. As a result he now owns two houses (one which his main residence and now another which was the main residence of my mum).

Thats ok, pretty clear up to now.

anesta wrote: »

He is thinking of changing her will so that my brother and I become the owners of the house that, for tax purposes, is NOT his main residence.

This is where the confusion arises .... Dad may apply for a variation/change to his bequest under her will, has probate been completed and tsf already effected ?

But I get the gist that Dad wants to transfer Mums old house (the property he doesn't live in) into the name of you and your brother.

anesta wrote: »

I don't know or understand all the implications, so I have a couple of questions, if anybody can help!
1. If I become the owner of half that house, would I have to pay some tax because I would then own or have a stake in 2 properties (one I will half own with my brother and half that I own with my wife)?

No tax for you on Dad transferring this property into the name of your and your Brother, including stamp duty (SDLT) - if there is no consideration (ie payment or goods) in exchange for the transfer.

However, Dad as this is not Dads primary residence WILL be exposed to CGT, which will based on the market value of the property on Mums death, and the market value when the tsf to you and bro is effected (less permitted reliefs, exemptions and allowances). This applies even if the property is gifted for no exchange of consideration (eg money). But there may actually be nil liability for him, depending upon property market movements, and as I say after the application of permitted reliefs/allowances etc.

anesta wrote: »

2. Could I decide to sell my half (or the whole house if my brother agrees) with no adverse tax implications for my dad?:eek:

Once Dad has transferred to you and Bro thats where his legal and tax responsibilties end (as I say he well be exposed to CGT when the transfer is effected).

Your sale of your share, well in theory you could sell your 50% share to another, whom didn't require a mortgage (as otherwise bro would need to be party to the mge) - BUT whether you would find a buyer or your brother would agree to own a propery with someone he doesn't know, is doubtful.

So the answer would be your brother buys your share from you, or you sell the property outright, and you and bro split the proceeds.

On sale, and if this was not or had been your primary home between taking ownership and sale, there would be CGT on any gain.

The gain will be determined by the selling price, less the market value of the property when gifted by Dad, and after application of any carry foward of previously nominated cgt losses, acquisition/disposal costs and your annual unused cgt allowance.

Following which the balance will be taxed at 18% if you are a basic rate taxpayer or 28% if you are a higher rate tax payer - and is reported via annual self assessment return.

anesta wrote: »

My dad is actually still living in the house.

Confused by ....

anesta wrote: »

He is thinking of changing her will so that my brother and I become the owners of the house that, for tax purposes, is NOT his main residence.

Which house is being transferred to you and bro - his or Mums old house ?

If its actually Dads own home, then he will NOT be exposed to CGT - but the rest of the CGT implications (assuming Dads home is mge free) to you and bro remain on future disposal.

Hope this helps (and sorry about your Mum x)

Holly

anesta

Thanks Holly. I'll try to make a few points clearer (I realize that it looks a bit confusing....).
Up until my mum's death, my dad+my mum+my brother lived in house A. Because my parents owned house B as well, house A was in my mum's name and it was her main residence. House B was in my dad's name and was (on paper) his main residence, although he lived there. My brother lived with them, in house A.
Now, my brother has actually bought a property, house C, which he rents out, and I don't know if it is his main residence or if his residence has remained at house A (where he still lives with my dad).
My dad inherited my mum's estate but he wants my brother and I to have house A. He is telling me that I would have to keep my half of the house for seven years, although I could do with selling it and having the money in the bank. I have a feeling that he is very confused about the tax implications, but I am out of all of the discussions as we live far apart.
So, my main question is:
Would anything (tax-wise) change for anybody if I decided to sell the house as soon as I own my part? (I understand that I would have to agree something with my brother).
Many thanks to anybody who can shed some light!
Anesta

Thrugelmir

Deed of variation of a will can be made with two years of a deceased's death.

This I suspect is what your father is thinking of.

You say a couple a years have passed. More or less?

holly_hobby

anesta wrote: »

Thanks Holly. I'll try to make a few points clearer (I realize that it looks a bit confusing....).
Up until my mum's death, my dad+my mum+my brother lived in house A. Because my parents owned house B as well, house A was in my mum's name and it was her main residence. House B was in my dad's name and was (on paper) his main residence, although he lived there.

As a married couple you can only have ONE primary residence (if they weren't married, then yes the indviduals can have 2 separate primary residences).

What (and the explanation is still a bit confusing !) appears to be the case, is that property A, is where Dad lived with Mum as his primary residence.

If so, he should be able to prove to HMRC, that this house was his primary residence - supported by I am assuming his banking accounts registered here, registration and payment of Council Tax, registered at local Drs, utility bills in his name, and where his employer and thereby HMRC will have recorded as his contact address (list not exhaustive of what may be used as supporting evidence of residency).

I say this as I am assuming the above comment "House B was in my dad's name and was (on paper) his main residence, although he lived there." should read "although he didn't live there".

If so, has this been rented out since ownership ? Or just left empty ?

If HMRC accept that property A is his primary residence (suggsted evidence as above), then there will be no CGT liability for him upon his transfer of the property to you and your brother. Otherwise, he will face cgt, as explained in my earlier post.

anesta wrote: »

Now, my brother has actually bought a property, house C, which he rents out, and I don't know if it is his main residence or if his residence has remained at house A (where he still lives with my dad).

If he remains resident in Property A post transfer, then he will qualify for PPR relief on his share of the proceeds, the amount will depend upon whether he lived there right up until sale (full relief on his share ie no CGT liability at all), or if he lived there only a partial time (when the amount of relief will vary along with his occupancy).

If the property never acts as his home post tsf and before sale, as explained earlier, he (as you) will be exposed to CGT on the gain. I won't go any further into this aspect at this point, just to keep things simple for now.

anesta wrote: »

My dad inherited my mum's estate but he wants my brother and I to have house A. He is telling me that I would have to keep my half of the house for seven years, although I could do with selling it and having the money in the bank.

He is getting confused with IHT and PETs (potentially exempt transfers) which have a 7 yr countdown out of tax liability. This would be relevant if he dies within 7 yrs of the gift, and his net estate will exceed 325k (or 650k if Mum died leaving her full IHT nil rate exemption untouched).

anesta wrote: »

I have a feeling that he is very confused about the tax implications, but I am out of all of the discussions as we live far apart.

Not if his estate will be exposed to IHT on his death. But if not, then yes he's getting a bit confused - but tax can be complicated and its very easy to make you cross eyed ! Thats why MSE is helpful, you'll get comment and guidance both from professionals and peeps whom have experience of your situation !

anesta wrote: »

So, my main question is:

Would anything (tax-wise) change for anybody if I decided to sell the house as soon as I own my part? (I understand that I would have to agree something with my brother).
Many thanks to anybody who can shed some light!
Anesta

If you sold within a short period of ownership, and assuming the market doesn't go wild between transfer and sale, then there shouldn't be any CGT, as there won't be a significant/any gain ....

i.e if market value at transfer is say 200k, you then sell at 200k - there is no gain ... but don't forget you have your CGT allowance, so in theory as long as your net (of permitted deductions) profit is less than £10,600 (if you haven't already used any of your allowance), there still wont' be any CGT on disposal.

I've tried to keep it simple as possible, so hope it makes sense !

Hope this helps

Holly

PS - have attached a HMRC link for you re CGT and property, which may help put some more meat on the bones for you ...http://www.hmrc.gov.uk/cgt/intro/record-keeping.htm

xylophone

http://www.taxdonut.co.uk/tax/capital-gains/cgt-for-individuals/private-residence-relief
Finally, couples should note that married couples (and civil partners) are only entitled to one principal private residence between them (unless genuinely separated). If you each own a home from before you were married, you have two years to nominate your principal private residence — with potentially large implications for capital gains tax on property sales in the future.

Probate has been granted and your father is now the registered owner of the house?

Looks like it is too late to consider a deed of variation if this is what he had in mind. http://www.hmrc.gov.uk/manuals/tsemmanual/tsem1815.htm

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm

Capital Gains Tax on a home you give away
As long as the home you give away is your main home, Capital Gains Tax won't be payable.
However, if you give away a second home, Capital Gains Tax may be payable if the property has increased in value between when you first owned it and when you gave it away.
The person you give the home to may also have to pay Capital Gains Tax if they make a profit when they sell, give away or exchange - 'dispose of' - the home, unless it's their main home.

It seems that your father should see a solicitor/ accountant to discuss all the implications.

holly_hobby

Thrugelmir wrote: »

Deed of variation of a will can be made with two years of a deceased's death.

This I suspect is what your father is thinking of.

You say a couple a years have passed. More or less?

I assumed it was more than 2 yrs from OPs comment, if so they'd be out of time, as application for variation must be made within 2 yrs of death, if not then a DOV could be applied for.

Regardless, by effecting the DOV and instead transferring to issue, and depending IF there is IHT issue (which we don't know, but with Dad appearing to refer to PETs it may be a possibility), the 100% IHT spousal exemption would be lost, and may subsequently expose the transfer to IHT issues instead.:(

Holly x

anesta

Thanks for all your help!
Yes Holly, you are right, I should have said that his main residence was house B although he didn't live there (late night mistake...).
My mum died nearly two years ago, the anniversary is approaching, and my dad keeps saying he has only a few weeks to put all of this in place, before the two years are up, so I assume he is trying to change her will(???How can somebody change somebody's else will anyway!).
I don't actually know which is his main residence now.
I thought as well that this 7 years rule was not really an issue here: why would I be told that I can only "dispose" of the property in 7 years time when it doesn't make any difference to his total estate, in case my dad passed away within 7 years, if I have the house or the money from its sale?
Anesta_pale_

holly_hobby

The 7 year rule, as explained, is essentially releveant if your Dads net estate on the death will exceed the IHT nil rate band threshold, which is currently 325k per individual or 650k if Mum didnt use any of her free iht in her lifetime, or upto this amount (on a percentile basis) if she did utilise some of her nil rate band before death ie she made non-exempt transfers).

The 7 yr PET term and gift would be relevant IF Dad is likely to have an estate exceeding the above figs on death within this time frame.

Regarding the DOV - this is a process whereby the terms of the will, with the benefeciaries agreement, may be varied or changed completely (AFAIK even if probate has completed, although it would may be easier and simplier to do this before probate). If the DOV is to mitigate IHT or CGT , IT must be lodged within 2 yrs of death.

The aim of the DOV is to permit a variation of the will, which legally stands as if the deceased had revised their will themselves. (pre death obv !)

In this case, Dad instead of inheriting Mums house, wants to vary Mums will so that legally it goes to you and Bro.

The variation MUST be lodged WITHIN 2 years of the date of death.

It is important before this done that you consider if the variation from Dad (transfers/inheritance are IHT exempt between spouses) and your & Bro (where they are not exempt to IHT) WILL create an IHT liability. (I've explained above the nil rate IHT band.

If the non - exempt transfer(s) exceed the nil rate band, her estate is liable to pay the IHT (or beneficiaries if her estate doesn't have the capital to pay HMRC the due amount) - this must be paid within 6 mths of the variation.

FYI

IHT is charged at 40%
CGT is chareged at 18% basic rate tax payer and 28% for a higher rate tax payer.

Here is a DOC application form - http://www.hmrc.gov.uk/cto/iov.pdf

If you/Dad don't understand if there are any IHT implications that may cost more than CGT liaiblity - take some professional advice BEFORE you submit this form .... but if the 2nd anniversary is approaching you better get your skates on !!

Hope this helps

Holly