Should Mum buy us out?

Helenochka

Morning all.  

20 years ago my mum, my sister and myself each bought a third in a house. My mum moved in and has lived there ever since. Neither I nor my sister has ever lived there. 

Mum is now 80. She has quite a bit in non-house assets.  Her share of the house is currently around £120 000. 

We’ve been thinking about inheritance tax. 

Given that she has a residence nil rate band of £175 000, plus another £100 000 worth of unused residence NRB which she « inherited » from my deceased Dad, we’re all wondering whether perhaps it would make sense to use some of her cash to buy out myself and my sister, ie to purchase our respective thirds of the house, so that she would own it outright.   

The thinking being that, that way, full use could be made of her residence NRB when she dies.  Otherwise it will be lost, as it cannot be set off against her other non-home assets. 

Can you see any drawbacks to this plan that we haven’t thought of?  Many thanks in advance for your ideas and suggestions.  

newsgroupmonkey_

I won't be the first to say it... but what if she needs later life care?

The Council will come straight after her. And because the house is in her name, you'll be forced to sell it.

SDLT_Geek

Have you thought of capital gains tax on the disposals by you and your sister?  If selling, there will the gain to think of from the acquisition cost 20 years ago to the market value today

youth_leader

I agree about the care concerns, at that age everything can change very quickly.  When I moved here in March 2021 my widowed neighbour was 82.  She had various health conditions but she was managing well.  During that summer she suddenly developed other health conditions and she moved into a nursing home in early December.   She had enough savings for the first few months, her house was put on the market in March 2022.   

Helenochka

Thanks very much for your suggestions so far. 

Yes, you’re right, there may well be care home fees to pay later. 

If so, we would first use her cash savings and, if those run out, we would sell her house. 

Let’s assume we stick with the status quo.  

Say she has £500 000 in non-home assets.  And £120 000 worth of house. 

Worst case scenario, £620 000 worth of assets would go on fees. 

Now let’s assume she uses some of her cash to buy out my sister and I.  Leaving her with £260 000 in non-home assets and £360 000 worth of house.  Again, under the worst case scenario, £620 000 would go on care home fees. 

So it makes no difference whether she buys us out or not. No?

Re CGT. Again, this is something my sister and I are going to have to pay anyway.  

Either now - if Mum buys us out. 

Or later - if she doesn’t buy us out.  When she dies, and assuming we sell the house straightaway, there would be no CGT to pay on the third we would have just inherited from her. But there would still be CGT to pay on our respective thirds in a property that has never been our primary residence.  

TBagpuss

I think you need to get some advice - as above, you would be liable for Capital Gains Tax on your share of the property when you dispose of it, which could either be now or if the house is sold after your mother dies .So you would need to budget for that. 

I think the position regarding care costs is fairly neutral, since if she needs to pay for care, it doesn't make much difference as far as I can see whether she has to use her other cash reserves or whether, if she bought the house from you she then had to use the equity in the house. If she keeps the cash, it might give her more choice about what she wants, as it may be easier for her to remain in her home and pay for whatever assistance she needs.

RAS

Is mum, or was mum married? Or widowed?

Helenochka

That’s a very good point. Thanks Tbagpuss. 

Helenochka

RAS said:

Is mum, or was mum married? Or widowed?

Yes, RAS, she was widowed many years ago. 

And so « inherited » some of my Dad’s residence NRB.
This allowance would be « wasted » under the current setup where she only owns £120 000 worth of house. 

Keep_pedalling

As you are going to be hit by a CGT liability at some point, it would make sense to get it out of the way now and you can then actually make use of what is currently an illiquid assets. It will take your mother’s estate out of IHT territory and she will still have ample liquid assets  to keep her self in comfort for the rest of her life.

RAS

You need to give the date of his death as that may affect what allowances she can inherit.