Future Inheritance/Capital Gains Taxes

[Deleted User]

Keep_pedalling said:

theoretica said:

JBTISH said:

 

Would there be any future benefit (taking into account the negatives you have pointed out) in her children owning a share in her home? 

I can't think of any.

JBTISH said:

 

What are the benefits of parents passing on property to children within their life time?

None that I know of.

I second that, no upsides whatsoever. 

Not only no upsides - but considerable downsides.

JBTISH

[Deleted User] said:

Keep_pedalling said:

theoretica said:

JBTISH said:

 

Would there be any future benefit (taking into account the negatives you have pointed out) in her children owning a share in her home? 

I can't think of any.

JBTISH said:

 

What are the benefits of parents passing on property to children within their life time?

None that I know of.

I second that, no upsides whatsoever. 

Not only no upsides - but considerable downsides.

Good evening Purdyoaten2

What are the 2 main considerable downsides that come to mind for you?

Jeremy535897

This question has been asked many times on this forum. The starting point is what tax you are trying to mitigate. Potentially there are two: inheritance tax and capital gains tax. Most estates of less than £500,000 (assuming no potentially exempt transfers in the seven years before death) escape inheritance tax completely, and all assets are revalued to market value for capital gains tax at the date of death, without a charge arising. In other words, there is no tax reason to take action. It is also clear that councils now seek to ignore lifetime gifts before death in establishing whether financial assistance for care home residence is warranted.

So there are no upsides. The downsides include the following. Any part owner of the property will have to pay capital gains tax on the disposal of the property (on their share of the gain) unless they occupied it as a main residence.

Any first time buyer reliefs for part owners will be lost, although that is stated not to be a concern.

Part owning a property may increase stamp duty costs on the purchase of other properties by the part owner.

The parent lacks the security of wholly owning her own home. Divorces happen, and part owners will have their share of the property taken into account. Siblings fall out.

There is one area that can be looked at, which may be worthwhile if one child will occupy the house with the parent as their main residence (for example as a carer). In such circumstances, a share of the property (if reasonable) given to them by mother may then fall outside mother's estate, and would qualify for main residence exemption in full (as now) since all owners would occupy it as their main residence. This might be worth considering if it is feared that mother's estate might exceed available exemptions for inheritance tax, but mother would have to live for seven years following the gift.

Keep_pedalling

JBTISH said:o

[Deleted User] said:

Keep_pedalling said:

theoretica said:

JBTISH said:

 

Would there be any future benefit (taking into account the negatives you have pointed out) in her children owning a share in her home? 

I can't think of any.

JBTISH said:

 

What are the benefits of parents passing on property to children within their life time?

None that I know of.

I second that, no upsides whatsoever. 

Not only no upsides - but considerable downsides.

Good evening Purdyoaten2

What are the 2 main considerable downsides that come to mind for you?

I am not sure why you are continuing to push this, you have already been told that her estate is not going to pay IHT, and you should know by now about the potential CGT issue. Your mother’s long term security my also be at risk though the death or bankruptcy of any of her children.

The whole idea is just plain dumb.

JBTISH

Jeremy535897 said:

This question has been asked many times on this forum. The starting point is what tax you are trying to mitigate. Potentially there are two: inheritance tax and capital gains tax. Most estates of less than £500,000 (assuming no potentially exempt transfers in the seven years before death) escape inheritance tax completely, and all assets are revalued to market value for capital gains tax at the date of death, without a charge arising. In other words, there is no tax reason to take action. It is also clear that councils now seek to ignore lifetime gifts before death in establishing whether financial assistance for care home residence is warranted.

So there are no upsides. The downsides include the following. Any part owner of the property will have to pay capital gains tax on the disposal of the property (on their share of the gain) unless they occupied it as a main residence.

Any first time buyer reliefs for part owners will be lost, although that is stated not to be a concern.

Part owning a property may increase stamp duty costs on the purchase of other properties by the part owner.

The parent lacks the security of wholly owning her own home. Divorces happen, and part owners will have their share of the property taken into account. Siblings fall out.

There is one area that can be looked at, which may be worthwhile if one child will occupy the house with the parent as their main residence (for example as a carer). In such circumstances, a share of the property (if reasonable) given to them by mother may then fall outside mother's estate, and would qualify for main residence exemption in full (as now) since all owners would occupy it as their main residence. This might be worth considering if it is feared that mother's estate might exceed available exemptions for inheritance tax, but mother would have to live for seven years following the gift.

Hi Jeremy535897

Thanks for that insight and detailed answer. Very helpful. It’s always good to get an answer that gives a little more depth of understanding. When it’s not a persons area of expertise, it always helps to seek multiple sources of information and opinion and double check them. Thanks for taking your time and patience to advise me. 

Have a lovely day.

JBTISH

Keep_pedalling said:

JBTISH said:o

[Deleted User] said:

Keep_pedalling said:

theoretica said:

JBTISH said:

 

Would there be any future benefit (taking into account the negatives you have pointed out) in her children owning a share in her home? 

I can't think of any.

JBTISH said:

 

What are the benefits of parents passing on property to children within their life time?

None that I know of.

I second that, no upsides whatsoever. 

Not only no upsides - but considerable downsides.

Good evening Purdyoaten2

What are the 2 main considerable downsides that come to mind for you?

I am not sure why you are continuing to push this, you have already been told that her estate is not going to pay IHT, and you should know by now about the potential CGT issue. Your mother’s long term security my also be at risk though the death or bankruptcy of any of her children.

The whole idea is just plain dumb.

It always makes sense to seek multiple sources of information to cross check and verify what is being considered.  Having several suppliers of PPE means you’re less likely to run out or be let down. Using multiple suppliers also means that you are less likely to end up being desperate and having to go cap in hand or pay double or treble at a later time.  Aircraft have multiple instrumentation displays from different sources displaying the same information for a very good reason. The opposition to government gives a different perspective, for different reasons. We have two ears and one mouth for a reason. Some lawyers are better than others…

Many people come to the forum to seek advice as they can’t afford that advice or can’t take advantage of what advice is out there that is free. Picking up a phone and ringing Citizens Advice is easy for some, challenging if you are deaf or mute.  Some come to the forum to offer advice in the hope they are able to help others just enough to make their lives a little better. Some come because they are lonely and need interaction. Some to massage their egos. Others just to read and gain knowledge.

From the perspective of a person skilled in a specific trade, what is obvious and simple to them, may be a completely daunting and overwhelming task for others. Donald Trump can complete a puzzle in 6 months that is for ‘2 to 5 years’. Turning your submarine towards to incoming torpedo might seem insane if you’re less knowledgable than the other guy. 

Lawyers and accountants are paid well because there is risk involved where giving the wrong information could have terrible consequences for their clients but more importantly to them, may make them liable to a fine or being debarred. Giving free advice or information on a forum bares little risk and less care and thought (though not always) is taken. My objective is to find things I may not have thought of and broaden my perspective. Then I establish the facts and and clarify fine detail.

When dealing with others affairs, money, assets, their care and their emotions it’s important to be as cautious and considerate as possible and explore all possible avenues. As many have pointed out, the negatives far out way the potential (if any positives), but to reach that conclusion, first ‘the many’ have to give their differing opinions, and even then, many can be wrong and tiny changes in circumstances can flip the whole accepted order on its head. Our Queen is Queen because her uncle was a playboy, not because she was in direct line to the throne. Sometimes a complete immature buffoon can end up running a country…or a comedian…or actor.

It’s also important to remember, just because you can, it doesn’t mean you should. 

Coming to the forum is a personal choice, not an obligation. Choosing to answer a question or offer advice is also a choice, you don’t have to…

Imagine a person riled by someone’s response and enters into a game of outsmarting  what they see as an adversary. From their perspective they’re going have the last word and put them in they’re place.  They furiously type replies not letting a moment go to waste. But if their opponent is typing from their prison cell, or locked ward or is on drugs, or just a troll, all they have accomplished is to raise their own blood pressure in a futile exercise. Have you ever tried to out stare a blind person, not knowing they are blind?

Insecure people feel threatened by small things. Sometimes the right response is no response.

Keep_pedalling

If you are still looking for further reasons why this is a very bad idea, here is another one.

On one of your earlier threads you say you are unemployed and homeless, which I assume means you are also on means tested benefits. These would stop if you were gifted property by your mother.

JBTISH

Jeremy535897 said:

There is one area that can be looked at, which may be worthwhile if one child will occupy the house with the parent as their main residence (for example as a carer). In such circumstances, a share of the property (if reasonable) given to them by mother may then fall outside mother's estate, and would qualify for main residence exemption in full (as now) since all owners would occupy it as their main residence. This might be worth considering if it is feared that mother's estate might exceed available exemptions for inheritance tax, but mother would have to live for seven years following the gift.

Good morning Jeremy535897

I’ve been considering your comments carefully and other peoples too and your last point above has been on my mind for several years now. I do appreciate that many if not all have stated there are few if no positives to purchasing a property and my Mother putting it in both our names. I have also considered the there may also be further negatives in the loss of ‘first time buyer’ status, stamp duty, capital gains at a later date and my Mother dying within 7 years of gifting a share.

In my inexperienced Legal & Tax mind my Mother & I considered putting the property in both our names for the following reasons: 

1. My Mothers sister will pay no Capital Gains Tax in France on the sale of a property as it was her sisters primary residence since moving there. My Mother will pay Capital gains (to both France and the United Kingdom) as it is not her primary residence. French Inheritance Tax did need to be paid 20 years earlier by all three children but it would not have had to have been paid at that time, had my Grandfather put the property in His, His wife’s name and one of his daughters name (my Aunt) at time of purchase in 1985. It was always her (my Aunts) primary residence anyway so had she been a part owner as well as resident from purchase day to sale day 30 odd years later no Inheritance or Capital Gains would have to have been paid by her individually. Obviously the other two children would have had to.

2. My Mother and Sister are both disabled and I am their primary carer. I make most of the big legal and financial decisions but with a lot of input and communication with my Mother. My sister can not make decisions in her capacity. My Mother wants to plan ahead (as best as any one can) to ensure preservation of wealth through generations and to ensure money isn’t wasted or taxes paid that would not need to be paid as in scenario 1 above, brought about by a lack of planning or poor planning. She’s looking a prior family mistakes and wants to ensure they are not repeated.  Mum is poor and always has been but was left a share of a property and now all of a sudden has no choice but to do something with the money. She has seen how poor decisions and lack of planning costs people a lot of money and she wants to make the best choice possible given the current circumstances and possible future circumstances. She knows I will make sure my sister is looked after, after she passes away but also understands my sister can not make decisions now and most likely will not be able to at the time of her death and she can not take in the complexity of the situation. 

3. Mum wants to ensure every penny of her taxes she is owing is paid as she believes strongly in the NHS and supporting it. The NHS has been a great support to her and my sister and she wants to know that she contributed to that by paying her taxes, even if in a round about away that is far beyond her control via HMRC. She also donates to charities and the NHS in her own small way and sees this as an opportunity to pay back what the NHS has done for her and her daughter.

4. My sister and I have no children and will not have children. We fall out every day and make up every day due to their illnesses. Stamp duty on a primary or secondary residence is not a consideration for me, nor will it ever be, unless I win the lottery. Capital gains is a thought as mentioned above but you have pointed out that it would not be a factor if it was my primary residence.  Inheritance Tax (at the moment) would not be a factor as the asset (and all her assets) are worth less than £400k. You also mentioned Councils and Care Home fees and people have differing views in an ever changing fluid ‘paying for elderly care’ situation. I was thinking that if it was also my home a ‘reasonable law’ of the land would be less likely to force a sale in the event of care being needed to be paid for but I do appreciate that as times change and when people and governments become desperate, anything is possible. 

My main considerations would be (1) if my Mother passed away within 7 years of gifting a share or adding me as a part owner. (2) Having it written in law that my Mothers share would pass to my sister upon her death or having my sister added as a 3rd share owner but that adds further complexity as it would not be her primary residence and she is in receipt of disability benefits. 3) Ensuring everything is done to the letter of the letter of the law and all taxes owed are accurately calculated and paid.

Therefore on the above family facts and in my limited understanding of taxes and the law, I thought it would be a sensible consideration as the pros (from my perspective) seem to exist in reality and there are no cons currently. This was my thinking. Obviously things can and do change… one can only work on the known knowns and the known unknowns… No one can foresee the unknown unknowns!

Could you offer your thoughts on my thinking and if there is any logic to it please? It would be greatly appreciated.  Could you also briefly explain what you mean by your statement a ‘reasonable’ share of the property and at what time it would be relevant to ‘falling outside her estate’.  Thank you.

Jeremy535897

It is a complex situation, and I apologise if I am misunderstanding things, but is the intention that your mother will buy a house, live in it as her main residence, and you will also live there as your main residence? If this is correct, I would suggest that you work out what proportion of the house each of you will be likely to use. Let us assume it is 50% each. My recommendation would be that your mother gives you a sum of cash equal to half the cost of the house, and you then buy it jointly. This potentially avoids issues with a gift of reservation more effectively than you being given half the house. It also removes any valuation issues.

There will be no capital gains tax as it will be exempt under the main residence relief exemption. You are aware of the stamp duty issues, but if it is your and your mother's sole property, there are no issues. You say there will be no first time buyer issues. It may be a deprivation of assets for care home funding purposes, but not likely to be worse than her having to go into a care home whilst being the sole owner of the home.

The inheritance tax situation is more complex. If she owned the home at her death, it was worth at least £175,000, and she left it to her children, then her estate would qualify for £500,000 nil rate band. If you owned half the house, the other half might be worth less than £175,000, so reducing the residential nil rate band, but if she died within seven years of giving you the cash to buy half the property, that gift would be deducted from her nil rate band on death, so you could make the inheritance tax situation better (if she lived for more than seven years from the gift), or worse (if she did not).

JBTISH

Thank you…that all makes perfect sense and yes you understood correctly that it is our “intention that your mother will buy a house, live in it as her main residence, and you will also live there as your main residence”. Eventually she will need at home care as opposed to the current situation of visiting her every day and doing shopping, finances, car rides, house keeping etc… 

This situation has been forced upon her and most would say “what’s the problem?! You have money to spend and buy a home“ but for her as she can not cope and has poor health it would have been simpler to not receive the money. From my perspective it’s about getting through the situation positively in an organised fashion and understanding the pros and cons and making sure nothing is wasted. 

Mum has seen other family members make terrible mistakes through either fear and subsequent inaction or belief in something that is not true without checking facts. It’s also not about avoiding her taxes but making sure she pays what she has to accurately and she feels good about this. It’s her thank you to the NHS. 

Thank you so much for your thoughts and advice. I’ll study it and digest it and keep it in mind for when the time comes. 

If she gifts me £175,000 to buy my share, am I right in saying there is nothing to pay tax wise as long as she remains alive for 7 years to the day but if she passes away then that sum would be subject to Inheritance tax? The other side of that coin is that that would be seen as ‘deprivation of income’ from the perspective of her Pension Credit Benefit. 

Thank you again