Worried about CGT on property mother signed over to me 18 years ago

Local_Lass

Hello,

When my father passed away nearly 18 years ago my mother insisted on transferring the house into my name, with her having a lifelong right to live there.  It was something my Dad had wanted to do but I had been very reluctant to do it, but when he passed my mother forced me into it with a lot of arguments, manipulation and emotional blackmail, she basically gave me no choice.  She has continued to live there since, doing whatever she wants to the house, and has disposed of my belongings that I had stored in the loft without my permission.  It’s not a great situation!

At the time I was married to a man in the RAF and living in forces accommodation.  We separated nearly 13 years ago and I then lived in rented accommodation for years, after as I couldn’t afford to buy anywhere as a single parent.  I was very fortunate and met the most wonderful man, and after a few years, and a lovely inheritance from my uncle, we decided to pool our resources and buy a house together, something I was really excited about after decades of MQ/renting.  Not so exciting was getting hammered for LBTT (we’re in Scotland) on the purchase, because this was classed as our second home due to my mum’s house (which I have no right to live in at the moment) being classed as my first home.  Whilst passing on this bad news, my solicitor also mentioned I’d probably have a hefty CGT bill if I tried to sell my mothers house on her passing, but said that she couldn’t really advise me as it wasn’t her area of expertise.  My partner and I have no intention of living in the house in the future, it contains too many bad memories for me.

My mother is still going strong at 83 but I’m a worrier and a planner and this has been keeping me awake at night, so I’m trying to figure out what my position is and what I can do to make things as painless as possible.  I know very little about tax etc and my only understanding of CGT is that it’s paid on the difference between what you paid for the property and what you receive when selling it - I paid nothing for the property so does that mean I have to pay CGT on every penny of its value?  It was clearly stated at the time that my parents wanted the house to go to my daughter (their only grandchild) but she was only 18months old when my father died.  My daughter is now coming up 20 and whilst she still lives at home she doesn’t want to live in the house in the future as it’s in a small, sleepy, coastal village with mostly pensioners and holiday homes.  If I sell my mother’s house in order to free up the money for my daughter to use towards a more suitable house then I’m worried that a very large proportion of her inheritance will be lost to tax.

It might be a long time before this becomes an issue but I’d really like to have some sort of idea of how we move forward as it’s really worrying me.  I know when the time comes we’ll need to take proper legal/tax advice but I can’t justify the expense of that right now so I’d very much appreciate any clarity anyone might be able to offer on what the situation is, and potential options moving forward, so I can try to figure out how to stop worrying!  As I said, I’m not very knowledgeable about tax etc, so layman’s terms would be most appreciated!  We are in Scotland, if that makes any difference.

Thank you so much for wading your way through this long background story, and for any advice you can offer.

[Deleted User]

With regard to CGT the gain will be on the difference in value between sale price and when transferred to you by your mother. Presumably that was not determined at that time and you require the services of an independent valuer to do that. Other than the deduction of costs associated with the sale (solicitors, agents fees) it would appear that you have only the 12300 allowance to deduct. The remaining amount would be chargeable at 18%, 28% (current rates) or a combination of the two rates based on your other income. (I know nothing about Scottish tax variances) I would presume that any improvements to the property were not financed by you. 

I am not sure that you should be stressing too much - the tax situation is fairly clear cut and there is nothing that can be done to reverse your mother’s decision 18 years ago.

Keep_pedalling

It was an extremely foolish thing for your mother to do. Not only will you be facing a CG liability on her death, the house still forms part of her estate as far as IHT is concerned. Because this was done way before the residential nil rate band was introduced her executors will not be able to claim that allowance, so you could face the double whammy of CGT and unnecessary IHT. 

The added complication is that should she ever need residential care the LA can still treat this as deliberate deprivation of asset, even after all these years.

This assumes your was the sole owner at the time it was transferred to your ownership, and not a trust created from your father’s Will or through a deed of variation.

Jeremy535897

Your mother must have used a solicitor to draw up some documentation with respect to the house, and it may have involved a variation of your father's will. You should have received a copy of the documents at the time. Without knowing the details, nobody can advise whether:

• there will be a capital gains tax free uplift in value on your mother's death, or not
• the house is still all in her estate for inheritance tax purposes, or not
• the house counts as your property for higher rate stamp duty or not
• deprivation of assets is an issue or not (very unlikely after so long if your mother was healthy at the time, which presumably she was if she is "going strong" 18 years later)

xylophone

It was clearly stated at the time that my parents wanted the house to go to my daughter (their only grandchild) but she was only 18months old when my father died.  

Can you clarify the precise situation concerning what exactly happened with regard to the transfer of ownership?

Is the property in question in Scotland?

Was it owned solely by your father at the time of death or by your parents as joint tenants/tenants -in-common (or equivalent in Scotland)?

If solely by your father, was a Trust created such that your mother was granted an interest in possession (Liferent?) and you were named as remainderman?  Or your daughter was named as remainderman?

Or your mother owned the property and created a settlor interested trust which gave her the right to occupy the property but named both you and your daughter as ultimate beneficiaries?

sheramber

But then OP wants the full value of the house to pass to her daughter.
 If I sell my mother’s house in order to free up the money for my daughter to use towards a more suitable house then I’m worried that a very large proportion of her inheritance will be lost to tax.

getmore4less

If there was a life interest trust then there may be no CGT issue and  may not have counted for LBTT.

The trust would predate the 2006 changes so needs checking.

Local_Lass

Thank you thank you so much for all your replies, hopefully I can try to clarify a couple of things that came up in comments.  

My parents were by no means wealthy, the house is an ex council house that the purchased probably nearly 20 years after they moved in, when there was a huge discount available for buying the house from the local authority.  I have no idea whether both their names were on the deeds, they never spoke to me about things like that.  The house, which is in a much sought after village in Scotland, is the only thing of value they ever had, there was nothing else of any consequence in the estate.  My mother has a very small amount of money in the bank and nothing else for me to inherit, so inheritance tax won’t be an issue.   I don’t know about anything about a will my dad might have had but if one did exist then everything would have gone to my mum and then in time to me - I’m an only child so the situation was very straightforward.  He brought up the subject of transferring the house to me before he died but I was living at the other end of the country at the time and couldn’t get their solicitor to give me straight answers about what all was involved.  At the time this was happening it was 7 years after transfer for the property to be included if either of them had to go into a home.  I wasn’t happy about it as I had many concerns, so the subject was put on hold.  

My father passed very unexpectedly and my mother went to pieces and forced me to accept the transfer after a huge amounts of arguing, emotional blackmail and some downright awful behaviour on her part.  She passed the house to me with the explicit instruction that I keep the house for my daughter because that’s what Grandpa wanted (I don’t think it was, it was all about her) but this was purely a verbal arrangement.  I did not receive any paperwork and all that my solicitor could tell me was that the house deeds are solely in my name, hence the extra LBTT.  There was no mention of any trusts etc, it seems very much that the title deeds were transferred into my name and that alone.  I doubt very much that they had the house valued at any point.  I was kept very much in the dark about the whole thing and my mother says she doesn’t know anything and then falls out with me for bringing it up.  

I appreciate the comment that I’m not going going to be worse off due to CGT being taken from something that’s not mine rather than an incoming bill, but that doesn’t mean I want to minimise the amount I lose!  It’s about protecting my daughters interests, and allowing her to have a nest egg for her own life.  The house we live in now will be split between my daughter and my partners 2 children, so my mothers house is the bulk of what my daughter will inherit as, due to health issues, I’ve not been able to build up any worth.  Part of me thinks we could rent the house out until I pass on and she inherits it but that doesn’t allow her access to the capital to set her up until she’s much older.  Either that or I just go and live there until I am allowed to sell it as my primary residence, even if that’d make me utterly miserable, though I suppose it’s a small price to pay to protect my daughter’s inheritance.  I know I shouldn’t worry about it now but that’s just who I am, and I like to know where I stand and where I need to be going forward.

I absolutely adored my Dad, he was my hero and by best friend, whilst having a very difficult relationship with my mother, which has only deteriorated since then.  At the time this all happened I was absolutely distraught and grief stricken so wasn’t really aware of what was going on, other than that my mother had decided the house was going in my name and I had no choice in it.  She wanted me added to her bank account and a power of attorney put in place as she expected me to take over all the running of the house, finances etc, but I managed to get out of that one by the skin of my teeth.  I’m sorry if my information is vague but you know what I know!

I really appreciate that you’ve taken the time to offer me advice, thank you.

[Deleted User]

Thanks for updating. I would say that if ever there is an example of not letting the tax tail wag the dig, this is it. I note that you have considered moving back into the house even though you would be ‘utterly miserable’. There really would not be a huge benefit in so doing as the period when you were absent doesn’t simply vanish from the calculation. While it is the case that, the longer you live in it the greater the exempt period, you should know that, under current rules, you would have to live in it for another 17.25 years for even half of the period of ownership to count as exempt. I am sure that is not your intention. Perhaps you could give us some figures and we will give you some idea of the CGT likely to be payable - a value at transfer to you and likely sale price?

Local_Lass

So even if I live in it and it becomes my primary residence I still can’t sell it for donkey’s years without still having some liability?  Eek! It’s the gift that keeps on giving ... or rather taking!   As I said earlier, as far as I’ve been told there was no valuation when it was transferred therefore I can’t work out the change in value.  My biggest concern is that because there was no value that I’d be liable for CGT on every penny of its sale value since there was no ‘cost price’ to deduct from that.  I guess my parents were very naive when they decide to do this and didn’t find out the long term consequences before going ahead.  Thanks for offering to try and calculate it, though!

Mickey666

Local_Lass said:

So even if I live in it and it becomes my primary residence I still can’t sell it for donkey’s years without still having some liability?  Eek! It’s the gift that keeps on giving ... or rather taking!   As I said earlier, as far as I’ve been told there was no valuation when it was transferred therefore I can’t work out the change in value.  My biggest concern is that because there was no value that I’d be liable for CGT on every penny of its sale value since there was no ‘cost price’ to deduct from that.  I guess my parents were very naive when they decide to do this and didn’t find out the long term consequences before going ahead.  Thanks for offering to try and calculate it, though!

Unfortunately, you can NEVER avoid some CGT liability no matter how long you live in the house.  There are some circumstances when living elsewhere would exempt you from CGT (eg being at uni, working abroad, etc) but from what you've said they are not going to apply in your case.  The rules for Private Residence Relief are described here: https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2017--2

You need to determine a value of the property at the time it was transferred to you.  One way to do this would be to value it today and then use an online house-price inflation calculator to work backwards - EG: https://www.nationwide.co.uk/about/house-price-index/house-price-calculator Alternatively, it might be possible to find sold prices of similar houses in the area online. 

Either will do at this stage to get a rough idea of your CGT liability and once you have these figures it's relatively easy to work out your CGT liability if the house was sold.

However, since seem to be mainly concerned with protecting your daughter's inheritance, I wonder if - at the appropriate time - the house could be transferred into your daughter's name, as it was transferred to you, presumably as a gift valued at the current market value.  As I understand things, there would be no CGT on such a transaction, although it would be subject to PET rules (basically, no tax to pay if you live for seven years after the gift).  At this point, daughter could either move into the house as her main residence, thereby not accruing any CGT liability on it, or simply immediately sell it, again with no CGT liability.

I'm not entirely sure about all that, but it might be worth further investigation.