Confused Over Cgt

simpywimpy

My mother has just passed away and it has now highlighted a problem for when my dad goes.
our situation now is that my dad owns half of his own house, i will own the other half left by my mother (yet to be sorted). my dad also owns the whole of my house that i live in and this is where we become liable for cgt.
dad bought my house for 40,000 6yrs ago and it is now worth 140-150,000. his will leaves his remaining half share of his own property to me together with the whole of my house. I intend to sell both at the same time when that happens.
How can we avoid CGT?
If dad gives me his share of his own house now and then registers my house as his main residence, will that work?
Can he gift my house to me now and avoid it? we are under the iht levels.

we ended up in this situation just to help me out as i wasnt working at the time to get a mortgage, noone mentioned we were leaving ourselves open to a huge tax bill:mad:

Murdina

if your dad leaves you the house in his will then you inherit it at its value then. There is no CGT on death, only IHT.
If you then carry on living in it and sell it in due course, you should get full private residence relief on any gain, which would be the difference between sale price and probate value(death of father).
The problem arises if you wanted to move before he dies. Then there will be a gain on the sale because neither of you could claim private residence relief on it. If you have no plans to move and depending obviously on your dad's age and state of health, maybe do nothing is best re your own house. Gifts are still liable to CGT so if he gives you his half now then there will be CGT due up that point on the house and no cash around to pay it.
Main residence is a question of fact so you can only claim it on a house which you live in. Your family seems unfortunately to have got into a situation where the owners and the occupiers are the wrong way around!
When your dad dies, if you sell the house he lives in then, you will have CGT to pay on your half. At 18%, this may turn out to be a better deal than if you had had to pay IHT (assuming it took you over the threshhold).
This is a very quick answer so others may come back with some better ideas.

simpywimpy

This is such a complicated subject..

I will not be selling my house until my dad dies and leaves it to me in his will therefore i will not have to pay cgt either myself or from his estate. is this correct?

At that point, i will also inherit the second 50% share of his house. would i be better letting dad have mums half of the house now and waiting till he dies to inherit the whole thing therefore avoiding any cgt?
thank you so much for your help

Murdina

Any transfers between you and your dad are gifts liable to CGT. So if you give your dad the half you have of his house, then if it has increased in value since you inherited it, then yes there is CGT to pay. However, as I get the impression she has only recently died then maybe it is worth rethinking whether you get it or not - ask the solicitor (I assume there is one) if you can vary the will still to do this. It used to be a good idea to leave half to someone other than husband/wife to save on IHT. But the new rule whereby the second spouse to die can use any of the first spouse's unused nil rate band gets round this. So it may well be better if your dad gets all the house and you then inherit it when he dies. However, this is quite a complicated area and does depend on the figures involved and what the IHT might be otherwise, so could really be worth having a chat with a solicitor if you can possibly afford it.