No will - inheritance to be gifted - tax implications

HeWhoDares

Here's the situation.
For various historical reasons, I own my father's home, worth approx £200k - he effectively rents from me. I have owned the house for more than 7 years.
He's coming to the end of his life and has no will, just a promise we'd meet his wishes.
There are 4 children (including me) who would share any value in the sale of the home, which is approx £150k.
In an ideal world, I could sell the house, split the £150k profit 4 ways and we'd each get £37.5k.
However, I understand there are tax implications.

First, CGT.  As a low tax payer, this would be 18% for me.  so the £150k profit would be reduced by £27k on the sale of the house.  (Is this correct?)
Second, it seems I cannot gift anyone any money without this being subject to tax.  This is what I'm not clear about.  

I understand I have a personal £3k tax free allowance on gifts - but these gifts would be substantially more.

• Is it the case that the recipient would need to pay income tax based on their rate of tax (some high, some low)?  
• And do they pay the tax or me?
• Or if I give all the money out, is this tax exempt unless I die within 7 years?  (Also, my estate is not worth £325k anyway - so if I did die, I wouldn't breach the threshold for IHT anyway)

If anyone can help, that would be great!!  

(Also, there are also smaller gifts between £1000 and £500 to grand and great grand children to be considered too)

Flugelhorn

you don't have to pay tax on gifts to people, and they don't have to pay income tax on them -  just that as you say they may be subject to IHT if you die within 7 years.

Keep_pedalling

There is no gift tax in the UK, you can gift as much as you like and there will be no tax to pay.

The gifts (less your annual allowance) however will remain in your estate for 7 years for IHT purposes. This is only significant if your estate exceeds you nil rate bands.

Does your father have any significant savings, if so how much? 

Grumpelstiltskin

Hang on, have I read this correctly. The OP is the owner of the house her father lives in ( sounds like that was possibly done to avoid care home fees )

So if it is solely in her name it doesn't matter if her father is alive or not when she sells it

It's only whether she survives 7 years after any gift she makes to her siblings or anyone else.

So I wonder if this was thought through when the transfer of ownership was done?

sammyjammy

Is it worth £150k or £200k I am confused?

Keep_pedalling

sammyjammy said:

Is it worth £150k or £200k I am confused?

I think the OP is deducting selling costs and CGT from the potential sale price.

xylophone

Your father gifted you this property more than seven years ago and then paid you rent?

He has asked you as the owner of the property to remember that he gifted it to you and therefore when you come to sell it, to use the proceeds to make gifts to your siblings and their children and grandchildren?

You are happy to do this.

These gifts  would be gifts from you and would be set against the value of your estate when you die and the IHT calculation is done. They are Potentially Exempt Transfers.

Keep a record of them with your will.

It is perfectly possible that depending on exact circumstances (value of death estate, time elapsed since gifting etc), no IHT would be payable.

Your siblings/nieces/nephews etc will not pay any tax when you make them these gifts.

Regarding "failed PETS"

https://www.rossmartin.co.uk/private-client-a-estate-planning/inheritance-tax-probate/4132-iht-gifts

HeWhoDares

Thanks for many great comments.
Sounds like I can gift the money out and it won't have any impact so long as I a) don't die within 7 years or b) die, but have less than the IHT threshold.  Good to make a note of the payments against any will I have.

Couple of responses to the above:
 - my father has no significant savings
 - the ownership transfer wasn't to do with care-homes, much more complicated than that I'm afraid
 - the house was bought for £100k but there is still £50k mortgage on the property, hence value of £200k but only getting £150k for it.

One other quick one...
The house was bought for £100k, so overall profit would be £100k.
So what would I pay the CGT on?  I assume the profit (£100k)

lr1277

If the home you own is an investment property, in terms of the tax band, this is based on adding together your income and capital gains. 

I sold an investment property.3 years ago. I had no income at the time, but the capital gain was more than 100k. This put me in the higher rate for CGT so I paid 28% on the profit.
Nowadays, you have to pay any CGT within 30 days of the sale I understand, as I didn’t have to go through the process. I think you need to get some kind of reference from HMRC in order to make the payment. I think there will be more details on the HMRC website or the tax cutting board.

Keep_pedalling

HeWhoDares said:

Thanks for many great comments.
Sounds like I can gift the money out and it won't have any impact so long as I a) don't die within 7 years or b) die, but have less than the IHT threshold.  Good to make a note of the payments against any will I have.

Couple of responses to the above:
 - my father has no significant savings
 - the ownership transfer wasn't to do with care-homes, much more complicated than that I'm afraid
 - the house was bought for £100k but there is still £50k mortgage on the property, hence value of £200k but only getting £150k for it.

One other quick one...
The house was bought for £100k, so overall profit would be £100k.
So what would I pay the CGT on?  I assume the profit (£100k)

HeWhoDares said:

Thanks for many great comments.
Sounds like I can gift the money out and it won't have any impact so long as I a) don't die within 7 years or b) die, but have less than the IHT threshold.  Good to make a note of the payments against any will I have.

Couple of responses to the above:
 - my father has no significant savings
 - the ownership transfer wasn't to do with care-homes, much more complicated than that I'm afraid
 - the house was bought for £100k but there is still £50k mortgage on the property, hence value of £200k but only getting £150k for it.

One other quick one...
The house was bought for £100k, so overall profit would be £100k.
So what would I pay the CGT on?  I assume the profit (£100k)

Yes, CGT would be based on the gain, less any purchase and sale expenses. You also have an annual CGA allowance of £12,300 you can deduct provided you don’t have any other gains to take into account.

Robert_McGeddon

HeWhoDares said:

Couple of responses to the above:
 - my father has no significant savings
 - the ownership transfer wasn't to do with care-homes, much more complicated than that I'm afraid
 - the house was bought for £100k but there is still £50k mortgage on the property, hence value of £200k but only getting £150k for it.

One other quick one...
The house was bought for £100k, so overall profit would be £100k.
So what would I pay the CGT on?  I assume the profit (£100k)

Surely the gain is £(150-100)K, i.e. £50K?