Gifted House

mikey_bach

A house valued now at £130000 was gifted in 1995, the person who it was gifted to doesnt live in the property, if the house were to be sold not would it be subject to capital gains tax. This was done through a solicitor and land registry was updated.
The original owner has now died and lived there until their death rent free.

Mattygroves2

Looks like you'll be caught with both CGT and IHT as it was a gift with reservation. So the property needs to be included on the probate forms for the person who died at it's market value now. It will also be subject to CGT when whoever it was gifted to sells it with a base cost as at the date of the gift.

mikey_bach

the house was gifted with a hundred year lease so the original owner could live in it till they die which they have this year. Does it make any difference that this was done before 1998?. If the new owner kept the property and doesnt sell it, ie rents it out, can they do this. I know they havent applied for probate as they have said the estate is under 5k.

booksurr

mikey_bach wrote: »

the house was gifted with a hundred year lease so the original owner could live in it till they die which they have this year. Does it make any difference that this was done before 1998?. If the new owner kept the property and doesnt sell it, ie rents it out, can they do this. I know they havent applied for probate as they have said the estate is under 5k.

confusing - who is the freeholder and who is the leaseholder?

if the person to whom the property was gifted is the leaseholder then when they sell the property they will (as said above by matty) be subject to CGT, but of course the value of the property (at the date of death) should reflect that with such a short lease it will be of reduced interest to buyers because of the difficulty of getting a mortgage on it, unless a further lease extension is obtained

what happened in 1998? I know of no reason why that year is relevant

you misunderstand what is meant by gift with benefit. The deceased person gave the property away but continued to live in it afterwards. For inheritance tax purposes therefore the value of the property is included in their estate even tough they "gave it away" since they continued to "benefit" from it . It is very unlikely therefore that the value of the estate is only £5k and so probate will be required

the new owner can do whatever they want with the property , keep, sell or let. But as soon as they sell they will be subject to CGT based on the gain in value between 1995 and the date of sale

purdyoaten

booksurr wrote: »

what happened in 1998? I know of no reason why that year is relevant

Perhaps the op means 1988 - the year DR relief died?

mikey_bach

thanks for the replies.
The house was gifted to my friend it was the family home, subject to their parents being able to live in till they die. The solicitor at the time did this by giving a lease on the property to ensure this would happen. The house is freehold and has no mortgage. There are two siblings in the family, one has the property in their name and the other has been told probate doesnt have to be applied for and if and when the house is sold they will get a share

booksurr

mikey_bach wrote: »

thanks for the replies.
The house was gifted to my friend it was the family home, subject to their parents being able to live in till they die. The solicitor at the time did this by giving a lease on the property to ensure this would happen. The house is freehold and has no mortgage. There are two siblings in the family, one has the property in their name and the other has been told probate doesnt have to be applied for and if and when the house is sold they will get a share

I am not a lawyer but reading this i would assume the "lease" effectively terminated on the death of the parents

on that basis sibling A became the legal owner in 1995 and is therefore liable for CGT for the gain in value since that date , the gain being the difference between its market value in 1995 and what it sells for now

sibling B has no apparent legal claim on the property but an expectation that they will be given a share of the sales proceeds by sibling A. Therefore sibling A will have to pay all of the CGT and is then able to give sibling B whatever sum is agreed (presumably from the after tax net figure) without any further tax implications as there is no tax on actual gifts

classy69

The person who was gifted the home should have charged the original owner rent to live in the property - this would then have not made it a gift with reservation.

booksurr

classy69 wrote: »

The person who was gifted the home should have charged the original owner rent to live in the property - this would then have not made it a gift with reservation.

and if the value of the estate was under the IHT threshold then the person living there would have paid rent for no reason whatsoever since the estate would not be liable for IHT even though it was a gift with reservation

xylophone

The parent gave the child the house on condition that he could remain living in it.

Ipso facto a gift with reservation?

To facilitate this, the new freeholder ( the son) granted his parent a 100 year lease.

Assuming that father was not living in the house for 100 years, the lease itself has some value and should be accounted for in the estate return?

The fact that there is a leasehold property involved would require an estate return to be done?

If the son makes his sibling a gift, he might wish to note the implications for his own estate http://www.hmrc.gov.uk/inheritancetax/pass-money-property/exempt-gifts.htm

It would be as well for the son to consult a solicitor concerning the legal/tax position as HMRC might well be asking questions when the house is sold and the CGT position assessed?

CLAPTON

one needs to be very precise about what is meant here


it would seem
that son A owned the freehold
son B owned nothing

father owned a leasehold property for 100 years (i.e. owned most of the value in the house)

on the death of the father the value of the lease will be shared equally between the two sons (assuming no other children and no will )

so a lot depends exactly what the 'lease' means here; if it means what a leasehold usually means then

given the fathers estate (including the value of the leasehold) is less than the IHT allowance then no IHT is payable

if the house is sold as freehold then only the freehold value is subject to cgt.