Gifting a property to a child

bingers_2

I was wondering whether there was any advice anyone could give about the implications of gifting a property.

My father passed away a couple of months ago leaving all his assets to his wife (my mother).

After many different alternatives, the best option appears to be that we move in with my mother.

This would mean that my husband and I would sell our current house and after paying off the mortgage, we would have about £80,000 equity. We would then use this money to convert the ground floor of the property (three storey town house) to be primarily accomodation for my Mum as well as a kitchen that we would all share. Mum would then gift the house to me and my husband.

From my research so far I understand that Inheritance Tax will not be an issue as Dad left all his assets to Mum and was under the £325K limit. As such I understand that Dad did not use any of his nil rate band and that this will transfer to Mum on her death giving her an inheritance tax threshold of £650K. Mum's assets including the gift of the property to us will not be that much.

What I am slightly concerned about is Capital Gains Tax and Care Fees.

Capital Gains:
I understand that we may have to pay capital gains tax if we were to sell the property (although we have no intention of doing that). Do the rules differ if we continue to live in the property? If we did sell it in 20 years time, would we have to pay CGT then?

Care:
I understand that it might be considered deprivation of assets if Mum does this but she is not likely to need care in the near future. Also she does have capital herself outside of the property which she will of course retain. Will they still be able to count the gift if she does need care in the future?

We will of course be seeking legal advice about this (Mum independantly from us - thank to previous advice I was given on a different thread!) but wanted to get a heads up on any pitfalls we might come across.

k0sh

Get professional advice.

I personally know of one case where this happened, and the wife got hubby to throw out the mother. He had no backbone and his mother had nowhere to live!

holly_hobby

Firstly .. there is no IHT between spouses, and if Dad didn't make any non-exempt transfer during his lifetime, his full unused nil rate band may be added to Mums on her passing (this is by application to HMRC by Mums executor or administrator if no valid will a time of death). At the current nil rate banding, that would mean that Mums estate on death would have a nil rate IHT threshold of 650k - so thats all fine.

However, if Mum transfers her home to your ownership (wholly), and she remains resident, or partly with no other financial input - then for IHT purposes this is classed as a gift with reservation (GWR) as oppossed to a PET, and as such the value of the transfer will remain part of her estate for the duration of her lifetime whilst she is resident (ie as it it never happened).

However, if she gifts only half of the property to you, you move in, and you equally share the bills and running/maintenance costs - then the 50% transfer will be classed as a Potentially Exempt Transfer (PET).

And if Mum survives for 7 yrs after the tsf, the value of the tsf will become exempt from Mums estate for IHT purposes, which will effectively reduce her estate's net value and potential exposure to IHT (if as I say she survives the 7 yr liability period following the gift. If she dies within this period, the value of the tsf will be included in her estate calculation and may be subject to IHT and taper relief).

HMRC refs for info -

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

PET liability
http://www.hmrc.gov.uk/inheritancetax/how-to-value-estate/gifts.htm#4

This can be a complicated subject for the layman, and I would strongly suggest engaging a HNW adviser to advise on prudent IHT and estate planning, whilst of course everyone updating wills etc - although you have the basics above.

Hope this helps

Holly