Home Tax confusion

skip06

This is a question for Tony about tax.
My father owned 2 properties (mortgage free) and resided in one. In 1998 he signed over the other vacant property to my sister who then rented it out. I went to live in my father’s house and also look after in him 1999. My father died in 2003 and I continued to live in his property. In his Will the property that I live in was Willed to my sister. Now my sister and I are looking at having the property that I live in signed over to me as I am resident in it and also because it has always been the understanding that we should both each own a property of my fathers. IHT was paid at the time of death as my sister handled all the probate side of things. I have recently been made redundant and am presently living off savings. The value of the property in which I am resident was, at time of my father’s death, £180k; now it’s been valued at £220k.
The value of the other property was £150k at time of death but has now dropped to £120k. If both properties were sold then there would obviously be a financial imbalance but my sister and I have always agreed that we should both have an equal share of the proceeds of both properties. This would involve possible financial ‘gifts’ to each other to settle the imbalances. What are the tax considerations for me concerning CGT or any other tax? Is there any tax advantage for me to have the property signed over to me and would a period of time have to elapse before I could sell the property without it attracting tax?

fengirl_2

You don't say who the second house is owned by.

noh

There are no CGT or any other tax liabilities for you.
Your sister currently owns both properties and would be liable for CGT on disposal of either one of them. A gift of your current residence to you counts as a disposal at market price.
CGT is payable on the difference between the acquisition and disposal costs. The acquisition cost of the first property was its value in 1998 when it was given to your sister. The aquisition cost of the house you live in is the probate value. Its a shame you didn't sort this out earlier as if you had used a deed of variation within two years of the death it would have been possible to sort out the situation with no tax liabilities.
Edit: When you say signed over to your sister in 1998 I'm assuming you mean ownership was transferred to her.

Nigel

silvercar

Totally agree with Noh's analysis of the situation.

If your sister has a capital loss on one property and a capital gain on the other, I wonder if she would be best to sell (or transfer to you) them both in the same financial year, thereby limiting her overall gain and saving tax.

skip06

Both houses are owned by my sister, the rented house was signed over to her from my father before he died. The house that he lived in is where I reside now but was willed to my sister (with my permission - could have been a costly mistake on my part)

skip06

jimmo wrote: »

Please excuse my Taxman’s mind but are we getting the full story here?
Your father owned 2 properties and gifted one, with vacant possession, to your sister whilst he was alive. The other, where you and he lived, he left to her.
What did you inherit?
Not necessarily a question I expect you to answer here but certainly a question that will come up if the taxman becomes involved.
As it stands it appears that your father gave/left everything to your sister and nothing to you despite the fact that you moved in with him, to look after him, in 1999.
That will arouse the taxman’s suspicion.
As a general rule I, as a taxman, expected to see that the children of the deceased inherited roughly equal proportions of the estate but your personal circumstances suggest that, if anything, you would be likely to inherit a greater share than your sister.
The replies posted by Noh and silvercar seem to be correct on the basis of the information you have given. However I see some possibilities of tweaking the tax bill but it rather depends on what you are comfortable publishing.

Still trying to get used to this site - so not sure if this will get to you Jimmo.

Thanks for the advice so far. The reason that my sister inherited everything was to ensure that no one else could get their hands on the properties. I have 3 ex-wives (last divorce was 10 years ago) and despite losing nearly everything I have ever owned during those testing years I did not want to inherit my fathers house and then find that any one of them had reason to take another 'slice' of me.

hope this answers your question Jimmo - and yes, keep up the good work advising people!

skip06

jimmo wrote: »

Sorry to pry, espescialy when the info you have now posted doesn't present much possibility of improving the tax situation. You seem to have a situation where you have burned your bridges. I was thinking along the lines that you could argue that you had a beneficial ownership of the house that you shared with your father from the day you moved in. That may have cost you quite a bit in legal fees but I think it would re-open the opportunity for your ex-wives to re-open any claims.
Taxwise alone I think it could be worth a punt but general law wise I think, and express no professional knowledge, that the dangers are too much.

It could be worth a chat with a solicitor who will have better knowledge of the risks of your ex-wives having a go.
I rather think that you and your sister will have to take the hit of CGT. Sorry

Thanks anyway Jimmo - your help and others who have responded to my plight have been very helpful - regards!

skip06

jimmo wrote: »

Sorry to pry, espescialy when the info you have now posted doesn't present much possibility of improving the tax situation. You seem to have a situation where you have burned your bridges. I was thinking along the lines that you could argue that you had a beneficial ownership of the house that you shared with your father from the day you moved in. That may have cost you quite a bit in legal fees but I think it would re-open the opportunity for your ex-wives to re-open any claims.
Taxwise alone I think it could be worth a punt but general law wise I think, and express no professional knowledge, that the dangers are too much.

It could be worth a chat with a solicitor who will have better knowledge of the risks of your ex-wives having a go.
I rather think that you and your sister will have to take the hit of CGT. Sorry

Just before I leave this question - is there any benefit to have the house that I live in signed over to me and for my sister to leave the other one in her name otherv than for me to have rightful ownership Jimmo?

skip06

Just before I leave this question - is there any benefit to have the house that I live in signed over to me and for my sister to leave the other one in her name otherv than for me to have rightful ownership Jimmo?

guppy

Of course if there is no urgency, you could speculate on the paper value of the house falling over the next few years, and transfer it sometime in the future.

Bit outlandish maybe...but it depends on your view of the market.

skip06

Just like to say a big 'thankyou' to Fengirl, Noh, Silvercar, Jimmo and Guppy for all your input - it's been a great help, Good luck to all your guys and girls.

Regards

skip06