Capital gains/inheritance tax/Will

outlaw777

With regards to the family home, my parent plans to leave it to me and my sibling.  We both own our own properties in Scotland that we live in and are the mortgage and deed holders for our own homes. The reason for my post is that my parent wants the most tax efficient possible for us to inherit the family home. Can my fellow experts on here please confirm/answer/respond to the following?

1. Once the Will is activated, If the house is transferred into our names jointly, if we as siblings then decide to sell the house will we have to pay capital gains tax/inheritance tax and if so, what will be the percentage?

2. If I were to to sell the house without any transfer of deeds into our names but only on the basis that all proceeds of sale will then go to us as siblings, does this avoid capital gains tax/inheritance tax and all proceeds minus legal fees will go to me and my sibling?

3. What if my parent decides to transfer the family home over to me and my sibling just now before doing a will where would be legally further down the line if we sold the property will we have to pay capital gains tax/inheritance tax and if so, what will be the percentage?

p00hsticks

1. What exactly do you mean by 'the will is activated' ? Do you mean after your parent dies ?

Does you parent also live in Scotland ?

I'm not an expert on Scottish inheritance laws / process compared with those in England but assuming England for the present....your fathers property will form part of his total estate, and the value of that estate will determine whether any inheritance tax is due. How much do you think the total estate is likely to be ? In the majority of cases, the estate is not large enough to trigger IHT. Where (if anywhere) does the second parent figure in all this, as depending on the circumstances there may be extra allowances to use from them ?. 

2. If the estate sells the property straight away at the value that was declared for probate (or 'grant of confirmation' if the deceased was in Scotland) then no CGT is due. If it sells for more than was declared at probate then potentially there will be a CGT liability for the estate to pay. ln England I understand the estate has a single CGT allowance (currently £12,300). I think, but am not sure,  that the percentage is 28% 

3. Usually a very bad move taxwise - if you parent is going to continue to to live in the home then it will not remove it from his estate for IHT purposes unless he pays you and your sibling rent at the market rate. As you and your sibling do not live in the property then you will also both be building up a potential CGT liability from the point of transfer - the percentage would depend on your other income. There are also considerations of 'deprivation of benefits' if your parent gives away their home and then needs care, and the possibilty that they could see their home sold from under them if you or your sibilng went bankrupt or got divorced.   

FYI, there's a 'death, funerals and probate' part of the forum that might be helpful, as I think similar questions have arisen and been dealt with there, specifically relating to Scotland.

https://forums.moneysavingexpert.com/categories/deaths-funerals-probate

outlaw777

p00hsticks said:

1. What exactly do you mean by 'the will is activated' ? Do you mean after your parent dies ?

Does you parent also live in Scotland ?

I'm not an expert on Scottish inheritance laws / process compared with those in England but assuming England for the present....your fathers property will form part of his total estate, and the value of that estate will determine whether any inheritance tax is due. How much do you think the total estate is likely to be ? In the majority of cases, the estate is not large enough to trigger IHT. Where (if anywhere) does the second parent figure in all this, as depending on the circumstances there may be extra allowances to use from them ?. 

2. If the estate sells the property straight away at the value that was declared for probate (or 'grant of confirmation' if the deceased was in Scotland) then no CGT is due. If it sells for more than was declared at probate then potentially there will be a CGT liability for the estate to pay. ln England I understand the estate has a single CGT allowance (currently £12,300). I think, but am not sure,  that the percentage is 28% 

3. Usually a very bad move taxwise - if you parent is going to continue to to live in the home then it will not remove it from his estate for IHT purposes unless he pays you and your sibling rent at the market rate. As you and your sibling do not live in the property then you will also both be building up a potential CGT liability from the point of transfer - the percentage would depend on your other income. There are also considerations of 'deprivation of benefits' if your parent gives away their home and then needs care, and the possibilty that they could see their home sold from under them if you or your sibilng went bankrupt or got divorced.   

FYI, there's a 'death, funerals and probate' part of the forum that might be helpful, as I think similar questions have arisen and been dealt with there, specifically relating to Scotland.

https://forums.moneysavingexpert.com/categories/deaths-funerals-probate

1. Yes this is what I mean and yes in Scotland. Property worth around 450k?

2. What is the % in Scotland?

3. What would be our best option please advise?

Keep_pedalling

You parents would be extremely foolish to to transfer their home, it would undo their current security, would be treated as deliberate deprivation of assets if care was required in the future, and it would not help with IHT as it would be treated as a gift with reservation unless they also paid you full market rent for it. 

You would also face a capital gains liability when eventually sold.

[Deleted User]

The ‘best option’ is 1). If the house is sold after inheriting it CGT will only be payable on the proceeds less probate value and, even then, there are two lots of 12300 exemption. 

As poohsticks says - we would need some kind of figure for the other assets in the potential estate.

outlaw777

[Deleted User] said:

The ‘best option’ is 1). If the house is sold after inheriting it CGT will only be payable on the proceeds less probate value and, even then, there are two lots of 12300 exemption. 

As poohsticks says - we would need some kind of figure for the other assets in the potential estate.

£450k rough estimate?

[Deleted User]

outlaw777 said:

purdyoaten2 said:

The ‘best option’ is 1). If the house is sold after inheriting it CGT will only be payable on the proceeds less probate value and, even then, there are two lots of 12300 exemption. 

As poohsticks says - we would need some kind of figure for the other assets in the potential estate.

£450k rough estimate?

So - 900k in total? What form do the assets, other than the house, take?

p00hsticks

outlaw777 said:

purdyoaten2 said:

The ‘best option’ is 1). If the house is sold after inheriting it CGT will only be payable on the proceeds less probate value and, even then, there are two lots of 12300 exemption. 

As poohsticks says - we would need some kind of figure for the other assets in the potential estate.

£450k rough estimate?

Is that forthe whole estate or just the property ?

If the latter, then (under current rules) there wouldn't be any IHT due - your parent has a IHT allowance of £325,000, plus a £125,000 'residence nil rate band' as they will be passing their main residence to their children - so IHT would only kick in over £500k at worst. And you haven't answered my question about the circumstances of the other parent, but there is the possibility of their allowance being added as well depending on the circumstances.

theoretica

Is your parent widowed?  If they are, and inherited from their spouse, they will also have inherited some or all of their spouse's inheritance tax allowance. 

outlaw777

p00hsticks said:

outlaw777 said:

purdyoaten2 said:

The ‘best option’ is 1). If the house is sold after inheriting it CGT will only be payable on the proceeds less probate value and, even then, there are two lots of 12300 exemption. 

As poohsticks says - we would need some kind of figure for the other assets in the potential estate.

£450k rough estimate?

Is that forthe whole estate or just the property ?

If the latter, then (under current rules) there wouldn't be any IHT due - your parent has a IHT allowance of £325,000, plus a £125,000 'residence nil rate band' as they will be passing their main residence to their children - so IHT would only kick in over £500k at worst. And you haven't answered my question about the circumstances of the other parent, but there is the possibility of their allowance being added as well depending on the circumstances.

Just the property 450k

outlaw777

theoretica said:

Is your parent widowed?  If they are, and inherited from their spouse, they will also have inherited some or all of their spouse's inheritance tax allowance. 

Yes widowed?