CGT/ Inheritance tax situation

Robbie100

My mum has now reached the age where she wants to get her finances in order, and we're in something of an odd situation. I was wondering whether anybody could give us a brief overview of where we stand from a CGT/ Inheritance tax perspective.

My mum owns a large flat in London which is currently worth 600k. I've never moved out and always lived here. It's my primary home. I pay for all the substantial upkeep, paid off the interest-only mortgage, pay the leaseholder fees, council tax etc. She pays utilities. However, the flat's in her name. 

Given that I'm an only child, and she wants me to inherit. We're wondering whether I will have to pay Capital Gains tax if she were to put me on the deed as a Joint leaseholder which would transfer the property to me on her death or whether there was some exception from inheritance tax as this is my primary home?

She had an interest-only mortgage and given that I paid off the mortgage shortfall and upkeeped the flat I don't view it as an 'inheritance.' Perhaps that's wrong legally?

getmore4less

Does she live there?
Is there a deceased spouse(your dad or other)?

The basic situation would be she dies you inherit  estate get totted up   she has £500k nil rate band to use,  maybe another £500k if there is deceased spouse(divorced&dead is no good for this)
NO CGT even if she does not live there

You could document your beneficial interests from your payments to the mortgage and others at some agreed value that would reduce her estate. by that amount there should be no CGT or IHT issues as long as she lives there, you effectively bought that amount.

another option, could combine with the above to reduce the size of the gift.
She could gifts you 1/2 the house now there is no CGT on her disposal(if she lives there)  but the values stays in her estate for 7 years then drops off.

in 7 years only 1/2 the house forms part of her estate

you would have to consider deprivation of assets with the gift but as you live there and there is  potential for IHT the primary motive is to secure your home and reduce IHT not claim care(if ever needed)

How big is the rest of her estate that will influence what options are worth looking at.

you also need to consider other things like
what if the house become unsuitable
you want to move on to somewhere else
...

xylophone

Your mother  lives in the property with you?

You have documentary evidence of all your expenditure relating to the property?

See a solicitor concerning a transfer of an interest in the property in consideration of the amount you have paid?

You would then own as tenants-in - common in the appropriate proportions - a Deed of Trust should be drawn up.

Robbie100

Thank you for the quick response. 

Yes, mum still lives here. We live together. I've lived here my entire life apart from university. I travel a lot which is why I've never bothered to move out. I've never seen the point of renting in London with this huge 4 bedroom flat just sat here with 1 person in it. We live in a first floor large flat so I doubt they'll ever be any mobility issues for her. I think she'd like to die here rather than downsize. There is no deceased spouse, she was a single parent.

As things currently stand would I pay inheritance tax on the value of the house + her estate at 40% above her threshold? This is basically what we'd like to avoid if possible. By the sounds of it, there is no exception if the house I am 'inheriting' is actually my main home.

Regarding documenting beneficial historic interest. This would be tricky but not impossible. Early on as everything was already in her name I just transferred her the money or paid bills in her name on my cards. Adding me to the deed and waiting 7 years looks like the easiest option.

She has around 80k savings. The 'problem' I suppose is she is 68 still working and taking home 40k after-tax every year. 







 

xylophone

https://citywire.co.uk/funds-insider/news/can-i-give-away-my-home-to-avoid-inheritance-tax/a589586
If you give half of your home to your children who then share the bills with you then the half of the house you gifted to them won’t be treated as part of your estate for IHT purposes, as long as you live for seven years after giving the gift.
https://www.taxadvisermagazine.com/article/gifting-family-home
If the parent donor and the child donee (for example) live jointly in the home after the gift then the child can’t make up for the gift by, for example, buying all the groceries or paying all the utility bills. In this case, the donor would receive a benefit from the asset he had given away and continue to be in a reservation of benefit situation. They will need to strictly split all bills fairly.

But it seems to me that you could make a case for already having purchased an interest in the property?

Robbie100

Thanks xylophone I will read up on these areas. I know we will need a solicitor, I'd just like to be informed and know the area before instructing a solicitor. The 7-year rule is useful but 7 years is a long time.

I don't keep paper records of bills. I suppose I could use historic bank statements as evidence. We never bothered setting up an arrangement like example two. Splitting bills fairly' now seems rather tokenistic. I'd quite happily pay them all because her 'share' will come to me later down the line anyway. It looks like semantics to me. 

I suppose after seeing a solicitor the best thing would be to open a joint bank account both paying in X amount and then running all the household bills through it. 

Thanks for the help.

unholyangel

Definitely get legal advice. What's the reason for your mum wanting to get things tidied up? How is her health? Is there any prospect of her requiring care in later years? If so you want to tread very carefully. Some LA's have form for being really strict/chancing their arm on deprivation. 

Mojisola

Robbie100 said:

My mum owns a large flat in London which is currently worth 600k. I've never moved out and always lived here. It's my primary home. I pay for all the substantial upkeep, paid off the interest-only mortgage, pay the leaseholder fees, council tax etc.

unholyangel said:

Definitely get legal advice. What's the reason for your mum wanting to get things tidied up? How is her health? Is there any prospect of her requiring care in later years? If so you want to tread very carefully. Some LA's have form for being really strict/chancing their arm on deprivation. 

I don't think this could be seen as a case of deprivation of assets.  The council would have to prove that Mum (a still working 68 year old taking home 40k) was transferring half the ownership of the property so that she could claim means tested benefits - quite a stretch.

As Robbie has contributed so much to the family home, mother could quite rightly claim that the transfer was in recognition of the financial contribution towards the property.

Robbie100

unholyangel said:

Definitely get legal advice. What's the reason for your mum wanting to get things tidied up? How is her health? Is there any prospect of her requiring care in later years? If so you want to tread very carefully. Some LA's have form for being really strict/chancing their arm on deprivation. 

Well we both know quite a few people who have died of Covid and she's been meaning to do it for a while. Her health is good, although she does have diabetes. 

unholyangel

Mojisola said:

Robbie100 said:

My mum owns a large flat in London which is currently worth 600k. I've never moved out and always lived here. It's my primary home. I pay for all the substantial upkeep, paid off the interest-only mortgage, pay the leaseholder fees, council tax etc.

unholyangel said:

Definitely get legal advice. What's the reason for your mum wanting to get things tidied up? How is her health? Is there any prospect of her requiring care in later years? If so you want to tread very carefully. Some LA's have form for being really strict/chancing their arm on deprivation. 

I don't think this could be seen as a case of deprivation of assets.  The council would have to prove that Mum (a still working 68 year old taking home 40k) was transferring half the ownership of the property so that she could claim means tested benefits - quite a stretch.

As Robbie has contributed so much to the family home, mother could quite rightly claim that the transfer was in recognition of the financial contribution towards the property.

I mentioned it as OP said their mum "has reached an age she wants to get her finances in order". Generally people do that when their health starts to seriously decline. 

And yes they could claim that, but it wouldn't matter a jot for deprivation of assets since they did not happen concurrently (it would still be a gift in law). But this is why I said to get legal advice, so everything can be properly documented in case the OP or OP's mum ever find themselves being questioned about it by the LA. I wasn't saying whether the LA would be correct to do so or not, just that in my experience, some LAs are getting desperate due to budget restraints and seem to have developed a habit of asking for sums based on some half baked interpretation of the law they have. 

Robbie100

Mojisola said:

As Robbie has contributed so much to the family home, mother could quite rightly claim that the transfer was in recognition of the financial contribution towards the property.

That's basically what she wants to do in a nutshell. I think a lot of people particularly in London will find themselves in this situation. House prices are ridiculous and I travel extensively. Rather than tie myself up with a mortgage I invested in the 'family home' instead. I'll also ask the solicitor about what changes I need to make if I choose to move out and buy something with a partner.