Inheritance Tax: Save £100,000s with simple advanced planning Article Discussion

grey_gym_sock

either porting a mortgage, or changing the ownership of the mortgaged property, will need the agreement of the lender - or a new lender.

there is no IHT issue if you swap properties of equal value (or some cash is paid to make up for any difference in value). if they are of unequal value, then the difference is a gift, and would be a potentially exempt transfer (PET) for IHT purposes.

there is also CGT to consider. both parties may (or may not) be liable for CGT on the property you're ceasing to own. the property's value for CGT purposes is its market at the time of the swap.

however, making both properties owner-occupied is good for avoiding CGT in the future.

stamp duty may also apply on the swap.

so there's a few things to consider there ..

GemQuin

Many Thanks for your response...although now I am even more confused.

The properties are not of equal value - The house my Mum owns (that I live) is about £135k more than the house I own (that she lives in).

OK so is the best thing to do to wait until I have a permanent job and then port my mortgage to the new house? And then swap the deeds? Does this seem like the best solution.

How do I find out about CGT and Stamp duty? Shoud I speak to a tax advisor?

Thanks again for your help.

grey_gym_sock

so that would be a £135k gift from your mum. providing she lives for at least 7 years after the gift, there's no IHT implication. otherwise, it would reduce her IHT allowance (which is currently £325k, or twice that when there is a spouse's allowance that can be used).

yes, waiting till you have a permanent job would make it easier.

on CGT, it depends on: the value of the house at the start and end of the period of ownership (i.e. the basic idea is that the rise in value is taxed); and whether the property has ever been the owner's main residence during the period of ownership (i.e. did your mum ever live in the house she owns, and vice versa?); if so, dates of ownership & residence; if the owner's lived there, has it also been commercially let? ...

i'm not sure how stamp duty works when swapping properties. i expect somebody else will.

holly_hobby

Ok, so Mums house, where you live, is unencumbered (mge free) -
whilst your property, where mum lives, is mortgaged, your plan is that you effectively want to simply swap legal ownership between you, with mum officially becoming the owner of your house and you effectively become the owner of mums house - sounds great but ...

Thats all well and good where neither property has a mortgage, it would be a straight transfer of equity and ownership between parties, BUT in this case YOUR property is mortgaged, which rather muddies the waters somewhat, given that you simply want to tsf your borrowings from one property to another.

This is because the term PORTING DOES NOT relate to the actual borrowings ie the o/s mge, but only to the mortgage product that applies to them, i.e a fixed rate, discount etc.

Which means that it isn't as simplistic as tsfng a £140k mge from one property to another, the mge itself must be completey repaid/redeemed upon sale/transfer of ownership, in order for the lender to release their charge and permit free title.

With any finance you reqd to pch Mums house (ie if she wanted a monetary sum), being completely new mge borrowings and a new application, to which you may seek permission to port your current mge product, but it isn't gted.

So, this begs the question if Mum is not actually purchasing your property from you for any monies (ie you just want to essentially swap ownership without any monetary exchange), and we now know that you cant tsf mortgage borrowings, how you actually intend to redeem your current mge, in order to permit the lender to release charge and for Mum to hold free title on completion ?

So, until we know that, whilst we can discuss SDLT, IHT, PETs and the like, unless you have monies to actually redeem your current mge on the property Mum lives in (and hopes to own), the plan's flawed unfortuantely.

Thats unless there are monies (either via your Mum obtaining a mge to pch your house or via other means) that will effectively allow you to fully redeem the £140k mge you currently owe ?

Plan needs a re-think maybe ?

Hope this helps

Holly

GemQuin

Hmmmm. Thanks Holly. That makes complete sense. And no, I don't have the money to pay off the mortgage on my Mum's place and she can't take out a mortgage because she is retired.
I can't think of any other plan really - can I just leave it as it is? Neither myself or my Mum mind the situation but was just concerned about how it would affect us tax wise if either of us died. Are there any other implications of just leaving things as they are that i am not aware of??

Also, my Mum has never lived inteh house she bought us and i have never lives in the house I bought her - does this matter?

Thanks for your help. This is so confusing!

Mojisola

GemQuin wrote: »

Also, my Mum has never lived inteh house she bought us and i have never lives in the house I bought her - does this matter?

Unless the total of either estate is going to be over £325,000, you don't have to worry about inheritance tax.

It's capital gains tax that you need to learn about.

Also consider what will happen when, say, your mother dies - the house you are living in will be part of her estate. What does will her will say about the house?

xylophone

Also, my Mum has never lived inteh house she bought us and i have never lives in the house I bought her - does this matter?

http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

'She bought us/I bought her" - this makes it sound as if you each bought a house and gifted it which is not in fact the case?

You bought and own a house but you don't (and never have) lived in it- incidentally, is the mortgagee aware and content- and your mother bought and owns a house but she doesn't (and never has) lived in it.

Presumably your mother has made a will which leaves her house to you?

If your mother ever needed care the house in which you live would be counted as her asset because this is legally the case?

GemQuin

Unfortunately the estate would be over £325,000 - not by much but by about £70,00 - So guess I'd have to pay inheritance tax on that.

Her will says that I will be the sole beneficiary of her house - so that's fine (I am an only child and she is single so this won't be contested).

Still don't understand the CGT issue - If, say she died (God forbid) and I inherited her house, I would then own 2 properties - am I right in thinking that is why I would have to pay CGT?

Thank you.

xylophone

With regard to IHT threshold, is the use of the late spouse's exemption relevant? http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm

With regard to CGT, see the link in previous post above if either you or your mother wanted to sell the houses you each currently own - neither of you currently has a PPR exemption given the current situation?

In the event of your mother's death, you would inherit the house in which you live under her will.

The house in which she lives is still owned by you and if you sell it after her death CGT considerations come into play- http://www.hmrc.gov.uk/cgt/property/basics.htm

GemQuin

No, the mortgage company doesn't know this, they think we live there - is that really bad?

Basically she wanted to downsize, so we bought her a flat and she let us live in her house. When we had a baby last year she wanted us to live near her so she sold her house and bought another one for us to live in close to the house that we own for her.

It's a bit complicated - I wish i'd thought this through before......