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

xylophone

You now own a flat and a house- the house is occupied by your mother and the flat is empty?

Or you owned the flat (bought as your PPR as far as any mortgagee was concerned), never lived in it but sold with PPR exemption to which you weren't entitled and bought the house in which your mother currently lives?

What was your mother's PPR position re CGT when she sold her house?

GemQuin

OK...sorry about this:

-My mum and I lived in Flat A where I grew up since 1980.
-She wanted to downsize so I bought house B for her to live in 2000
-I continuted to live in Flat A until last year when my Mum sold it.
-My mum bought house C for me to live in.

So when Flat A was sold it was my Primary address.
She now lives in House B (but I own it - mortgaged)
I live in House C (she owns it outright paid for from the sale of flat A)

Is this any help?

holly_hobby

Blimey o'reilly .... its like a puzzle on the krypton factor !!

Only joking ....

IHT - as discused above, if there is a deceased SPOUSE or civil partner in the background, whom had some or all of their IHT exemption free band unused, this can be added to Mums 325k by application to HMRC by her executors (which could take her exempt band to a max of 650k based on current HMRC regs).

Of course she could gift the property to you now, and as long as she survives the 7 year PET clock, they'll be no IHT on the property value on her eventual passing - but any MT benefits and state funded LTC application will be affected under deprivation of assets (discussed towards the end of this post).

Otherwise, if there is no unused spouse exemption, and its her cash/other assets/property, that are forming the 70k excess you mention, don't forget she can utiltise annual IHT exemptions to gradually reduce her estate, such as annual 3k gift allowance (where the prev unused allowance may be carried fwd to the next yr, making a 6k IHT exempt gift, but only 1 yr carry fwd is available), plus cash gifts from income and other gifting reliefs (which I won't over complicate the post with here) - she needs to speak to her financial adviser regarding effective estate planning.

CGT - payable on disposal of an asset, and is based on the (net of permitted deductions) difference between acquisition cost/value and proceeds on sale.

With regards to CGT on property, there are various mitigating reliefs/allowances etc - but as it stands if you sell the flat on Mum no longer living there/she sells the house, you/she are exposed to CGT on the gain, less permitted costings and your annual unsued CGT allowance (which in your case can be both that of your own and your wife's, even if she is not on the deeds, but is deemed a beneficial owner).

With regards Mums house she bequeaths to you on death - there will be no cgt on this if you continue to live in it from the date of acquisition to sale, as you will qualify for full PRR (primary residence relief). IF however, you do move out of it pre sale but sell within 36 mths of vacating, there will still be no CGT exposure. Any period longer than this (and assuming its because you've let it), there may be some CGT liabiilty but this will more than likely be offset by lettings relief (unless there is a significant gain).

My advice upon inheritance, would be that if you do intend to create a future situ where CGT comes into play, ensure that you have an independent market valuation done of the property at the time of probate, in order that you can prove to HMRC the assessed "acquisition" value, and file it away for any future CGT calcs and verification.

Don't forget that if Mum seeks any state funded long term care assistance, her house (which you live in), will be utilised as part of the assessment and care planning.

Furthermore, if she applies for any MT benefits, then as she does not reside in her own home (presuming she completes the forms correctly), you may well find that this will not be exempt from any MT calcs under primary residence regs, and may well be treated by DWP under 2nd property regs - meaning she may well be excluded from MT benefits.

And with regards informing the lender of your vacation, yes you should have done this and should do this (as technically you are in breach of your mge T&Cs) - but then I suspect you already realise this.

And after all that ..... I need a lie down in a dark room !

Hope this helps

Holly x

xylophone

]So when Flat A was sold it was my Primary address

I am no expert but as far as I can see the above is irrelevant for CGT from your point of view because you didn't own the flat, your mother did.

The flat A ceased to be your mother's PPR in 2000 when she moved into a house B which you owned and still own but never lived in. You remained in Flat A which your mother owned.

Your mother sold Flat A in 2012. For the CGT position that would have been relevant see http://www.hmrc.gov.uk/cgt/property/sell-own-home.htm

Your mother bought house C outright but it has never been her PPR-It is your PPR but you don't own it.

See the links previously given re CGT if either B or C were to be sold now.

If your mother were to require care, the house in which you live would be regarded as her asset because she owns it.

As for your position regarding your mortgagee for house B, I suspect that the position should be clarified.

GemQuin

Hello,

Sorry for the delay - it really is a krypton factor puzzle! Thanks so much for your advice.

I think I understand now, though think I maybe best to seek advice regarding CGT.

What are MT benefits please?

So, my Mum can 'gift' me the house now? How does she do that, and does that then mean I have 2 properties? Will this change the CTG situaton? Or won't kick in until I sell her house (that I own.)

Thanks again.

Mojisola

holly_hobby wrote: »

Of course she could gift the property to you now, and as long as she survives the 7 year PET clock, they'll be no IHT on the property value on her eventual passing - but any MT benefits and state funded LTC application will be affected under deprivation of assets (discussed towards the end of this post).

[QUOTE=GemQuin;62565627
What are MT benefits please?

So, my Mum can 'gift' me the house now?
[/QUOTE]

MT = means tested benefits. If your mother were to put in a claim, she could be assessed as if she still owned the house you live in, even if she has gifted it to you.

Google 'deprivation of assets'.

holly_hobby

GemQuin wrote: »

Hello,

So, my Mum can 'gift' me the house now? How does she do that, and does that then mean I have 2 properties? Will this change the CTG situaton? Or won't kick in until I sell her house (that I own.)

Thanks again.

Yes, CGT is only payable on a property that is not your primary residence or has only acted as your primary residence for some of your ownership period.

Yes you effectively will own 2 properties.

Mum's House

If Mum gifts you her house now, which is currently your primary residence, and you continue to live in it until you sell it - there will be no CGT liability on any gain, as you will be entitled to full Primary Residence Relief . (I've also discussd the situ if the property later ceases to be your primary residence).

Your Flat

If you sell the flat Mum currently lives in (which has never acted as your primary residence, and is unlikely to do so pre-sale), then you will be exposed to CGT on the net (of permitted deductions/reliefs) gain on disposal.

Permitted deductions are costings such as improvement costs (not repairs/decorating), acquisition & disposal costs inc professional fees and personal unused annual cgt allowance of all beneficial owners.

Transferring Mums unencumbered property into your name should be relatively easy, assuming it is registered (which may not be the case if Mums owned since pre-LR registration was effected), and is essentially simply a transfer of ownership/equity exercise (assuming you don't want any property survey's conducted etc).

You can either complete the Land Registry (LR) forms yourself (which are pretty simple, and if the property is already registered are TR1 & AP1), or you may want to engage a conveyencer if you feel unsure on completing things yourself (there will be a fee for their services and also LR registration and information fees as applicable - which I won't post in case they confuse, but LR will happily advise if you contact them).

Here are some quick LR links for you ....

Application to change register - AP1

http://www.landregistry.gov.uk/_media/downloads/forms/AP1.pdf

Tranfer of Title - TR1

http://www.landregistry.gov.uk/_media/downloads/forms/TR1.pdf

Land Registry main site (which includes a link to check if the property is registered or not).

http://www.landregistry.gov.uk/public

Hope this helps

Holly

GemQuin

That's really helpful, thank you.

I think I'll go down the route of asking my Mum to 'gift' me the house and then I will deal with the CGT when I need to sell her house. I'm going to try to do it myself too.

If I tell the mortgage lender that I am not living in my the property I own, are they likely to make a fuss? I've been paying off my mortgage without fail for almost 5 years.

Thanks so much for shedding light on my situation!
X

holly_hobby

With regards mum residing in your mortgaged flat - the issue the lender has is that you applied stating it was you to be your primary residence, and although you have duly serviced the mge, if Mum was not noted as an occupant at the time of application ( & signed the consent to vacate disclaimer) - the mge lender will have an issue if they seek forced vacant possession on any forced sale (ie if you default on the mge).

It may be on disclosure that the lender won't cause to much fuss, on the other hand they may throw an almighty strop due to the possessionary issues.

You may be of the opinion, well I just won't tell them about Mum, the issue with that, is mge lenders periodiocally perform residency checks such as votors roll and other verification enqs to try and catch out un-authorised letting, so your non-residnce may be revealled that way.

I would call them and explain the situation, I may not reveal unless pushed that you have never lived there, and essentially you pchd the flat at outset for your Mums residency, as that would essentially be admitting mge fraud ( due to as I say you application being based on the fact that the flat was purchased as, and the mge applied for, as your primary residence) - be as woolley as possible about when the transition happened, without actually lying.

If the lender asks for you to redeem the mge, due to the residency issue, you would need to source a regulated buy to let mortgage (of which there are a few lenders that consider) or a mge for a dependant (which aren't now so freely available) - either way, given the residency issue, a broker would be the way to go if you need to source an alternative provider

Hope this helps

Holly

GemQuin

Thank you.