Capital gains tax applicable?

Grenage

Greetings!

My partner and I will be moving this year - we currently live in a house that is in my name, I'd like us to both be on the deeds of the new place; this is where it gets a bit hazy. My partner's mother put her house and bank accounts in my partner's name, a few years ago. I assume it was for inheritance tax reasons down the line, but asking why would mean a lengthy conversation, likely leading me to jump out of a window.

If my partner and I took out a mortgage together, that would ultimately mean that she was an owner of two houses; should her mother die (which hopefully will not be for a long time), my partner would pay capital gains tax on the property - I assume. Considering the value of the house, capital gains would most likely far outstrip any inheritance tax.

As we don't need my partner on the mortgage to get a mortgage, it doesn't really matter - it would just be nice to know where we stand.

Mattygroves2

Whatever you do your partner will be liable for CGT on the house her mother lives in assuming they haven't lived there since it was gifted to them. However, the CGT will be based on the net sale proceeds less it's market value when gifted and will then be taxed at either 18% or 28% depending on what your partner's other taxable income was. They would also get the first £11,000 tax free.

Assuming your partner's mother has continued to live in the property without paying market rent then the property is still within the mother's estate for IHT purposes (gift with reservation) so it is likely the estate would be hit by IHT as well.

So possibly a double tax problem if the house really is in your partner's name rather than a Trust.

anselld

What you and your partner do will have no effect either way on the mothers house.

Even now, it is not your partners residence so would be potentially liable to CGT from the date of transfer to the date of sale. Not sure what is trying to be achieved anyway since the transfer would probably be deemed a "gift with reservation" unless the mother is paying market rent.

silvercar

Is there a mortgage on partner's mother's house? If so then that will need to be declared to the lender for your new mortgage. If not, then the fact your partner has a financial interest in another property won't be relevant to the mortgage application.

Grenage

I had a feeling that this might be the case; good info regarding IHT if the mum isn't paying rent. We aren't trying to achieve anything, her mum put it in her name I believe as she thought it might be helpful to her later on (before my time).

The mother is selling her house later this year, and I just wanted an idea what the situation might be. Still, not much I can do about that, but at least it doesn't affect us getting a mortgage together.

Thank you for the advice!

silvercar

When you say the mother is selling her house, do you mean your partner is selling the house and will be having to pay the CGT that will then be owed?

Grenage

Sorry, yes. As it's in my partner's name, I guess that's true. I don't want them blindly going through all of this and then finding out they owe a load of money later on.

I'll have to have a sit down with her and find out exactly what she's done. It may well be worth her hiring a professional to sort it all out.

Grenage

Quick final question, if I may. Is it likely she'll be able to undo all of this hassle, by my other half simply signing the house back over to
her mother?

Foxy-Stoat_3

Anything is possible, with the cost solicitors fees, land registry fee...if no money is changing hands the Stamp Duty won't apply, not sure about CGT.

Grenage

Thank you; I'll have the discussion with her tonight.

booksurr

Grenage wrote: »

Quick final question, if I may. Is it likely she'll be able to undo all of this hassle, by my other half simply signing the house back over to
her mother?

if your partner gifts the property back to her mother then yes CGT will still apply as your partner is "disposing" of an asset which she owns, it is the act of disposal which triggers CGT, not whether any cash changes hands
the gain will be calculated exactly the same way:
Market value at point of transfer - market value at time she received it from her mother