Capital Tax Gain Question

mak67uk

Hi, My mother-in-law is about to sell her house and move into a newer house.
Afterwards we are planning to have the house signed over to me and my wife.
We originally gave my mother-in-law some money to buy this ex-council house as a 'right to buy'. Now the 3 year waiting period is up we would like to transfer ownership of the house.
But, as i mentioned earlier, she will sell hers, buy another and sign the new house over to us!
I realise that we will somehow have to pay for this

Do you know what exactly what we would have to pay and would it be classed as CGT? The new house is valued at £120,000

Finally, are there any work arounds or loopholes that would enable the property to be transfered into our name and not pay anny taxes for the privalige?

Thanks in advance!

Ian

silvercar

So she is selling her ex-council house. On paper, she bought it and she is selling it, it has been her principal private residence for the whole time so there is no CGT to pay.

Now she is going to buy a new house and you want it in your name. So effectively she is gifting you money to buy a house that she will live in. correct? If so then there is no CGT to pay until the house is sold, at which point you will be taxed on the gain. There will be some allowances to reduce the bill, but basically the CGT only becomes payable when the house is sold and if there is a gain.

The other option would be for her to buy the house in her name but leave a will leaving it to you. The danger is that an arguement could result in a will change...

I am assuming there is no mortgage planned. If there is then the house title needs to reflect the mortgage ie the people that are taking out the mortgage need to be the owners of the house.

There may be inheritance tax to pay if you MIL did not last for 7 years after gifting you the money, as it would be included in her estate. If she ever needed to go into care, the local authority may judge that the house was deliberately put into your names to avoid having to sell it to fund her care home.

mak67uk

Hi Silvercar, Thanks for the reply!

We originally gave my MIL £18,500 just over 3 yrs ago to buy the house.
- with the understanding that it will be signed over to us after the 3 year period.
Instead of signing now, we are going to move her to a newer house (and pay the £20,000 difference of the houses) and then when the contracts are complete - see a solicitor about signing the house over to us!

So, this would still be CGT free as long as we don's sell the house?
We don't intend to sell the house as she will be living there for the rest of her life - either rent free or for a nominal fee!

One other thing, i now it's slightly off topic but, here goes......
After all this has been done, she will prob retire in a couple of years time....will she have given up to any rights she may have had from the government regarding help towards rent/coucil tax etc?

If you don't know then that's fine as you have been very kind and more that helpfull anyway

Really appreciate the advice before we talk to a solicitor anyway!

Thanks again

Regards,

Ian


ps, oh yeah, there will be no mortgage tat all on the new house as ithe extra borrowing is secured on my house - don't know if this alters things?

tom188

Would this not be partly classed as a gift with reservation (as MIL is living in the house and not paying market rent) thereby meaning the house would remain liable to IHT beyond the usual 7 year period?

silvercar

I don't understand why you aren't putting the new house striaght into your names. Why have to instruct a solicitor a second time to transfer the property over? Which ever way you do it, your MIL will have gifted you money from the sale of the ex-council house or the new house.

...with the understanding that it will be signed over to us after the 3 year period....

Is this understanding documented? If it is verbal I doubt it could be proved. You may be able to get something written that the house was provided rent free in return for her paying the deposit from the sale of her property.

After all this has been done, she will prob retire in a couple of years time....will she have given up to any rights she may have had from the government regarding help towards rent/coucil tax etc?

I thought she wasn't paying rent? Councils can get sniffy about paying rent to relatives so there is a risk. Council tax benefit would be based on her income/ savings.

mak67uk

We thought that putting it into our names may avoid IHT after the 7 year period? There is some documentation regarding the house belonging to us but, i don't think this is set in stone yet.
All the that i have mentioned are just ideas so far as the best way to proceed.
Basically, we want the property to be signed over to us (only once tho) when she is in the new house but, with as less of a financial burdern to me and my wife as possible.
If she can claim rent benefit from the government when she retires, then we will charge her rent - otherwise she will live there FOC. (she is currently paying £45 us per week - unofficially)
Sorry if i am confusing matters it's just that i'm not sure how to proceed with this ?

"I don't understand why you aren't putting the new house striaght into your names. Why have to instruct a solicitor a second time to transfer the property over? Which ever way you do it, your MIL will have gifted you money from the sale of the ex-council house or the new house."

- She will only sign over once -with the new house - so altho she 'gifted' us the money, would this only be affected by CGT if we sold the house?
(but, we will not sell tho)

Hope this makes it a bit clearer?

Thanks

Ian

mak67uk

I am not ripping anyone one off at all.
Since my MIL has bought the house (with the money we gave her) then we have spent around a further £10,000 on home improvements - kitchen, garden, bathroom and other items - so how is she being ripped off when she would be paying the council more than the £45 per weekanyway???
I have not come on here to be accused of fraudulant behaviour - as i said i am asking for advice as i am not privvy to tax rules and regulations
I am looking for advice and not criticism!
Sorry if i come across as trying to fiddle the Tax man but, that is simply not the case!
I would like to know the next cause of action that is best for my MIL and me and my wife/family!

Thanks

Ian

insured

mak67uk, do not worry all is not lost.
Although you say you gave your MIL the money to buy the council house, what you probably did was to make an interest free loan to her.
You cannot be the beneficial owner of this council property, because, from what I remember, the council would have made your MIL, when she made the purchase, sign all sorts of documents saying that she was sole owner, there was no "arrangement in place", "agreement in place" etc. That is why you could not be part of the purchase. The council do not like this sort of thing, and this is why you have to wait three years.
If she had had an affair with the young gardener and decided to keep him in the house, you could not have done much about it except get the interest free loan you made back from her.
The money she was paying you was not interest, it was simply a repayment of the interest free loan you made to her. Thus you are not in trouble with the taxman.
As she is the owner of the house, when it is sold, she pays no CGT as it is her PPR. If she gave the house to you, and then you sold it, ther would be CGT because it is not your PPR. The CGT would be the difference between your aquision price ie market value when you aquired it and when you sold it(less taper relief etc)
If she sold the house then gave you the money, again, no CGT. She is making a gift to you.
If she gave the house to you there are various IHT consequences.
Unless she pays you full market rent for living in the house after she gives you it, this transaction would be ineffective from removing its value from her estate. Not only that, you would be into pre owned assets tax territory which is too involved for here. If she does pay you rent to live in the property after giving it to you, then you will be liable for tax on the rent.
Your problem may be if she pays you rent and then she goes onto means tested benefits, you will have great difficulty getting housing benefit.
In effect what she would have done is deprived herself of an asset which the benefits agency do not like. They will treat her as still owning that asset.
You cannot really say that she was never the benefiical owner of the property, and you were, because the council would not have allowed her to purchase the property if you were the beneficial owner.
You are probably OK from a tax point of view, but she cannot claim state benefits. Its a case of not having your cake and eating it.
Hope this helps and best of luck.

mak67uk

Hi Insured, I really appreciate the detailed and informative response
You have covered alot of ground for us there!
I realize that when she retires in a couple of years that she will probably live in the house rent free - even after it is signed over to us
Our intentions were and still are as follows: we bought the house as an investment
MIL could not possibly afford to buy it or make home improvements so... we paid for the house with the agreement of signing over after 3 years - in return we have made the ex-council house really comfortable for her ie: new bathroom, kitchen, garden, front room etc etc
So although we have given her a far better and comfortable home life it is still an investment for our retirements in about 25-30 years time and then to pass onto our 2 children. We may sell the house in the near future but, to move her into a smaller, newer house nearer us that is easy to maintain!
We would sell her house (which would be ours by then) and all the money plus more that we would have to borrow for the 'upgrade' - there would be no gain on our part money wise as we swapping properties and paying our for the privilage. We would also pay tax on any rent we may collect as well
Anyway, sorry to prattle on and thankyou for a very unbiased and friendly response.
However it would be nice to know what she can and cannot claim when she retires due to this situation - any ideas or can you point me in the right direction!
Thanks again

Ian