Very confused...inheritance tax, CGT, income tax

shavy65

Hi hoping for some advice here!
About 8 years ago we moved my Grandmother`s house into my name and for the following 6 years I paid her £200 per month to help her out and in exchange I own her house once she passes.


Thought it was all good, but now I`m starting to think it`s a minefield! I don`t think inheritance tax is an issue as her estate will be less than £325 000, but now I`ve heard I might get taxed on all the money I`d been giving her?
Also to make matters worse I was told that even though I`ve taken nothing from her in rent that I would get taxed on what I should have been taking from her for the previous 8 years! (and that would be at the market rental value)


If this is true, and I was given the tax bill today, I reckon I`d have a bill of nearly £50 000 to pay the Taxman....I`m really hoping someone can clear this up for me!

Thanks all.

G_M

shavy65 wrote: »

Hi hoping for some advice here!
About 8 years ago we moved my Grandmother`s house into my name and for the following 6 years I paid her £200 per month to help her out and in exchange I own her house once she passes.
she continued to live in the property? I believe this is a gift with reservation so it would still be liabe for Inheritance Tax, though not if the estate (including the property) is less than £325K


Thought it was all good, but now I`m starting to think it`s a minefield! I don`t think inheritance tax is an issue as her estate will be less than £325 000, but now I`ve heard I might get taxed on all the money I`d been giving her?
I don't see why you would be taxed on gifts to your grandmother. I assume you've already paid income tax on it, via your earnings?

Also to make matters worse I was told that even though I`ve taken nothing from her in rent that I would get taxed on what I should have been taking from her for the previous 8 years! (and that would be at the market rental value)
Don't see why? Where did you hear this?


If this is true, and I was given the tax bill today, I reckon I`d have a bill of nearly £50 000 to pay the Taxman....I`m really hoping someone can clear this up for me!

Thanks all.

More relevant is Capital Gains Tax when/if you sell the property.

It has been your property, but not you home, so liable to CGT on sale, on whatever increase there has been in value.


Read

http://www.inheritancesolutions.co.uk/articles/is-it-wise-to-transfer-my-house-to-my-children.html

&

http://www.which.co.uk/money/tax/guides/inheritance-tax-explained/gifts-with-strings-attached/

caprikid1

You also need to consider Deprivation of assets. You have not given your gran hardly any money in respect of the house and if she goes into a care home they may well seek to overturn the transaction.


As a tax payer its not right for you to get a house and me to get the bill.

G_M

caprikid1 wrote: »

You also need to consider Deprivation of assets. You have not given your gran hardly any money in respect of the house and if she goes into a care home they may well seek to overturn the transaction.


As a tax payer its not right for you to get a house and me to get the bill.

indeed

http://www.ageuk.org.uk/home-and-care/care-homes/deprivation-of-assets-in-the-means-test-for-care-home-provision/

Innys1

shavy65 wrote: »

Hi hoping for some advice here!
About 8 years ago we moved my Grandmother`s house into my name and for the following 6 years I paid her £200 per month to help her out and in exchange I own her house once she passes.


Thought it was all good, but now I`m starting to think it`s a minefield! I don`t think inheritance tax is an issue as her estate will be less than £325 000, but now I`ve heard I might get taxed on all the money I`d been giving her?
Also to make matters worse I was told that even though I`ve taken nothing from her in rent that I would get taxed on what I should have been taking from her for the previous 8 years! (and that would be at the market rental value)


If this is true, and I was given the tax bill today, I reckon I`d have a bill of nearly £50 000 to pay the Taxman....I`m really hoping someone can clear this up for me!

Thanks all.

You wouldn't get taxed on the money you gave her. She would, potentially, get taxed on the income she was receiving from you.

Yes, she should have been paying you market rent for the house to qualify as a gift exempt from inheritance tax. However, you say her estate is less than £325k so, even if it was deemed an invalid gift and went back into her estate, there would be no IHT to pay.

Assuming the value of her estate remains below the IHT threshold upon her passing away, you have nothing to worry about from a tax perspective. If, though, it were to rise above the threshold, you may need to pay IHT on the excess.

G_M

Innys1 wrote: »

....

Assuming the value of her estate remains below the IHT threshold upon her passing away, you have nothing to worry about from a tax perspective..

except Capital Gains Tax.........

shavy65

Could you explain the CGT a bit for me?
As I`m understanding it I would be eligible to pay the tax only on the increase in value from 8 years ago until the day she passes?

This doesn't seem near as bad as I first feared then (provided it doesn`t breach the 325 000 threshold, even if the value has increased by £10 000, as a ballpark figure, would I pay 40% on this?


Very much appreciating all the feedback, wish I`d came here first instead of trawling websites!

xylophone

Your grandmother transferred her house into your name - either this was a gift or it was in consideration of a payment by you to her of £200 a month- either a kind of private interest free mortgage or a sale at a highly discounted rate?

As this was her own home, there would be no CGT for her to pay on transfer, but there could be IHT implications on death, depending on the value of her estate including the house.

If she needed care, and was looking for LA funding, it is likely that the LA would look on the transfer of the property at undervalue/by way of gift as deprivation of assets and might assess her as though she still owned the property - this might leave you morally (and possibly legally?) responsible for the bills?

When the house is sold, as you are the legal owner and it is not your PPR, you will pay CGT on any gain above your CG allowance.

Innys1

G_M wrote: »

except Capital Gains Tax.........

..........when they come to sell the house which, I'm assuming won't be the day after granny passes away.

G_M

shavy65 wrote: »

Could you explain the CGT a bit for me?
As I`m understanding it I would be eligible to pay the tax only on the increase in value from 8 years ago until the day you sell the property.

Nothing to do with her death, or Inheritance, or inheritance tax.

You became the owner of the property 8 years ago. When you sell, any gain in value is taxed (CGT). If you had lived in the property yourself, as your primary residence, it would be exempt from CGT, but you have not.

see

https://www.gov.uk/capital-gains-tax/overview

CGT is charged at 18% or 28% depending on your income tax rate (basic or higher rate), with an annual allowance (free) on the first £11,100 (this year).

shavy65

Thanks G_M. I understand what you are saying, one query though....how will they know how much gain in value there`s been between 8 years ago and the day I sell it?
The house has never been sold or been on the market since it was built.
Thanks again.