Inheritance tax and stamp duty

Gantry77

Good morning,
I have a few questions.

Firstly my wife's parents are gifting her and her brother (Richard) their London home (which my wife and I now live in.)





Their parents bought the house in 1982 for £90k.


They Lived there until 2012 and then moved up the country and lived between the two properties.
The house is now worth approx. £900k
We are now trying to work out what IHT will have to be paid ?
Will it all have to be paid on the capital gains £900k - £90k


Or the capitals gains the house made between 2012 and 2018.
How would they work out the value of the house in 2012


Can we argue that this house was the primary residence after 2012 as they lived between both properties ?

Next Question
My wife and I then plan to get a mortgage and buy Richard out.
So would Richard then have to pay any tax on the £450k he would get ?




Last question
Presume my wife and I would have to pay stamp duty on the £450k when buying Richard out?


A few years ago I had a house in the republic of Ireland (it would be my wife’s first property) so guessing we would not qualify as first time buyers for stamp duty.


Any tips or advise would be gratefully received as up to a few weeks ago I was very unfamiliar with all of this.

Thanks

AdrianC

Gantry77 wrote: »

Their parents bought the house in 1982 for £90k.

They Lived there until 2012 and then moved up the country and lived between the two properties.
The house is now worth approx. £900k
We are now trying to work out what IHT will have to be paid ?

It'll depend on when in the next seven years they die.
https://www.gov.uk/inheritance-tax/gifts

Will it all have to be paid on the capital gains £900k - £90k or the capitals gains the house made between 2012 and 2018.

2012 - the time they lived there is ignored.

How would they work out the value of the house in 2012

The same way they back-calculate values for council tax banding. They look at comparables.

Can we argue that this house was the primary residence after 2012 as they lived between both properties ?

It depends on whether it actually was their "primary residence". Staying there occasionally doesn't count. Where did they register for council tax and for the electoral roll?

My wife and I then plan to get a mortgage and buy Richard out.
So would Richard then have to pay any tax on the £450k he would get ?

No.

Presume my wife and I would have to pay stamp duty on the £450k when buying Richard out?

Yes.

A few years ago I had a house in the republic of Ireland (it would be my wife’s first property) so guessing we would not qualify as first time buyers for stamp duty.

Correct.

getmore4less

On the mortgage front it might be best to buy of the parents for £450k and let them gift to your brother.

Raising money on a jointly owned house obtained recently may impact choice of lender.

Start with a broker before doing anything with the ownership of the property.

IHT:

NOTE: For any future IHT assessments the timing/order of the gifts is critical get advice or research in depth.

CGT:

Time living in the place is not ignored it is used to get private residence relief.
Did they declare a primary residence while having both houses.
Have they been renting it to you

When in 1982 did they buy it there is a change in April 82

davidmcn

The transfer via the brother seems pointless (and also potentially complicates the funding, as lenders don't like "back to back" transactions like that).

xylophone

If the OP and wife purchase the property from the parents at half market value this will be a concessionary purchase or gifted equity?

They would need to make this clear to the mortgagee?

The CGT/Stamp Duty will be charged on the full market value of the property?

Gantry77

Thanks.
So you are saying to gift the house 100% to my wife and we pay her brother £450k
Would there be any tax implications with him receiving this money ?

getmore4less

xylophone wrote: »

If the OP and wife purchase the property from the parents at half market value this will be a concessionary purchase or gifted equity?

They would need to make this clear to the mortgagee?

The CGT/Stamp Duty will be charged on the full market value of the property?

CGT for the parents with be market value on the disposal

The SDLT will be only be on the consideration.

getmore4less

Gantry77 wrote: »

Thanks.
So you are saying to gift the house 100% to my wife and we pay her brother £450k
Would there be any tax implications with him receiving this money ?

They would be seen as connected transactions the gift to you is dependant on you giving your brother the money(considerations for SDLT).

xylophone

You and your wife buy the property from her parents on a concessionary purchase/gifted equity basis (check with mortgage broker) and they use the proceeds to make a gift to her brother?

Keep_pedalling

You in-laws should look at the possibility of obtaining insurance that would pay out enough to cover IHT on the gift should they not survive 7 years.

00ec25

Gantry77 wrote: »

Firstly my wife's parents are gifting her and her brother (Richard) their London home (which my wife and I now live in.)

Their parents bought the house in 1982 for £90k.

They Lived there until 2012 and then moved up the country and lived between the two properties.

the answers so far appear to have focused on the word gift, not on the fact parents appear to have moved out in 2012. Therefore jumping on the IHT implications of a gift is premature to dismiss exposure to CGT, not IHT

i'll take as read parents were ignorant of the rule allowing them to inform HMRC which of the 2 they choose to be their main residence on paper as they had to have done so by 2014 at the latest

Parents are disposing (by gift) of a property which may, or may not, be their main home. Therefore parents may, or may not, be exposed to CGT on that disposal.

As a married couple tax law says they can only have one main home between them (the same for each of them obviously) so for tax purposes they cannot "live between them" - one or the other of the 2 properties they occupy must be their main home (even if the property "up country is rented by them, rather than owned by them).
So the crucial question is: can parents claim main home exception for the entire period 2012 to date> The answer to that depends wholly on what evidence they can produce to show how they lived in the property, why they lived there, and therefore does it meet the "matter of fact" test that it was their "main" home. The facts of their lives will include such issues as: were they still working and thus commuting to where? where was their social life and where would friends expect to find them? How much time they spent in each property is a factor but not in itself a deciding factor.

If they cannot, then they will pay CGT on the gain from 1982 to date, less the relief due on the 30 year period 1982 - 2012 when (I assume) it was the only home they owned so was de facto the main residence, ie out of 37 years ownership 30/37 (81% of the gain) is exempt, and 19% is not - note the actual calculation has some extra bits you don't need to know about just yet but the & will be different in the real calculation

if they can prove it was their main home 2012 - date then, and only then, would the IHT gift rules come into play. Under those they would need to live for 7 more years so the gift is exempt from IHT - and they must not be able to carry on using the house for their own purposes during or after making that gift or it will not leave their estate for IHRT purposes.