Inheriting Half a House on Death of First Parent

GunJack

SDLT_Geek said:

GunJack said:

Don't come over this part of the forum these days, but in a discussion with parents about wills, LPA, etc. this came up...

Their current will passes half their house to me on the first death. Now, I'm a homeowner and me & Mrs. G-J will be looking to move & downsize at some point. If this were to happen AFTER the first death, does that mean when we sell our place and buy our (hopefully) forever home we'll get stung with second property stamp duty as I'll already own half a house? Currently in Wales and would in all probability be buying in Wales too and buying under the £225k threshold...

Anyone come across this or can give any useful info??

Because the property OP might be buying is in Wales, the relevant stamp duty is Land Transaction Tax (LTT).  The higher rates of LTT (roughly an extra 4%) do not apply to someone who sells their existing home and buys a new one (again to live in as their only or main residence) even though another property is owned.

Nor would LTT normally be due on the inheritance of a share in a property (assuming the property which might be inherited is also in Wales; if not the SDLT rules for properties in England are similar).

Thanks for all the responses so far - for clarity. we all live in Wales and when me & Mrs G-J do move it'll still be in Wales.

Could someone explain the CGT part please, as I've not come across that before...if I'm reading some of the posts above correctly, when I inherit the second part of the property (and so own it outright), I'd be liable for CGT on the first half when the property is sold??

GunJack

propertyrental said:

Perhaps an overly cautious question, but do the parents currently own the property as Joint Tenants or Tenants in Common?

The answer might make the OP's dilemma irrelevant.

If you do inherit half the house, it's Capital Gains Tax (on sale) to be concerned about, not SDLT.

this is one of those things that they intend to clarify before updating their wills...

doodling

Hi,

GunJack said:

doodling said:

Hi,

GunJack said:

housebuyer143 said:

 If you put half that house from your parents in your name then you will likely have to pay stamp duty plus the additional 4% on that share.

I thought that might be the case, I think their will is currently written to pass the half directly to me which could well make us liable.

That would be unusual - most people don't want their children to be able to throw their widow out of the house in that situation.

me throwing one of them out would never even be a possibility, we're quite a close family ...

Presumably you also won't get into significant debt or get divorced where your ownership of the property could be up for grabs?

Is there any reason why the wills don't give the surviving spouse a lifetime interest - as I said  before, it would be unusual not to. It also avoids many of the taxation pitfalls - e.g. CGT is not an issue, SDLT is not an issue, inheritance tax is only payable on the second death.

GunJack

doodling said:

Hi,

GunJack said:

doodling said:

Hi,

GunJack said:

housebuyer143 said:

 If you put half that house from your parents in your name then you will likely have to pay stamp duty plus the additional 4% on that share.

I thought that might be the case, I think their will is currently written to pass the half directly to me which could well make us liable.

That would be unusual - most people don't want their children to be able to throw their widow out of the house in that situation.

me throwing one of them out would never even be a possibility, we're quite a close family ...

Presumably you also won't get into significant debt or get divorced where your ownership of the property could be up for grabs?

Is there any reason why the wills don't give the surviving spouse a lifetime interest - as I said  before, it would be unusual not to. It also avoids many of the taxation pitfalls - e.g. CGT is not an issue, SDLT is not an issue, inheritance tax is only payable on the second death.

It may well do in it's current form, but tbh it was about 20-25 years ago they last looked at them, they can't remember the detail and they don't hold a copy themselves (it's lodged with a solicitor). Revisiting the wills is part of a whole refresh/update to include LPAs, accounts, etc.

..and no, I'll not ever be in any debt (let alone significant debt) or get divorced...we're a seemingly rare couple these days, still madly in love 30-odd years on

RAS

Hi, your parents need to understand the difference between leaving you half the house, absolutely and the first deceased assigning their half to you with a life interest trust allowing the other parent to live there for the rest of their life/ until they remarry/ move into a care home. 

They should talk to their solicitor about the difference.

_Penny_Dreadful

GunJack said:

SDLT_Geek said:

GunJack said:

Don't come over this part of the forum these days, but in a discussion with parents about wills, LPA, etc. this came up...

Their current will passes half their house to me on the first death. Now, I'm a homeowner and me & Mrs. G-J will be looking to move & downsize at some point. If this were to happen AFTER the first death, does that mean when we sell our place and buy our (hopefully) forever home we'll get stung with second property stamp duty as I'll already own half a house? Currently in Wales and would in all probability be buying in Wales too and buying under the £225k threshold...

Anyone come across this or can give any useful info??

Because the property OP might be buying is in Wales, the relevant stamp duty is Land Transaction Tax (LTT).  The higher rates of LTT (roughly an extra 4%) do not apply to someone who sells their existing home and buys a new one (again to live in as their only or main residence) even though another property is owned.

Nor would LTT normally be due on the inheritance of a share in a property (assuming the property which might be inherited is also in Wales; if not the SDLT rules for properties in England are similar).

Thanks for all the responses so far - for clarity. we all live in Wales and when me & Mrs G-J do move it'll still be in Wales.

Could someone explain the CGT part please, as I've not come across that before...if I'm reading some of the posts above correctly, when I inherit the second part of the property (and so own it outright), I'd be liable for CGT on the first half when the property is sold??

When you sell an asset, such as a house, the gain (difference between the value when you acquired the asset and disposed of the asset) is subject to Capital Gains Tax. When you sell a property that you’ve lived in the whole time as your only or main residence your Private Residence Relief makes your CGT liability zero. However, your parents’ house is not your only or main residence so you will not receive Private Residence Relief meaning the gain will be subject to CGT. 

propertyrental

_Penny_Dreadful said:

GunJack said:

SDLT_Geek said:

GunJack said:

Don't come over this part of the forum these days, but in a discussion with parents about wills, LPA, etc. this came up...

Their current will passes half their house to me on the first death. Now, I'm a homeowner and me & Mrs. G-J will be looking to move & downsize at some point. If this were to happen AFTER the first death, does that mean when we sell our place and buy our (hopefully) forever home we'll get stung with second property stamp duty as I'll already own half a house? Currently in Wales and would in all probability be buying in Wales too and buying under the £225k threshold...

Anyone come across this or can give any useful info??

Because the property OP might be buying is in Wales, the relevant stamp duty is Land Transaction Tax (LTT).  The higher rates of LTT (roughly an extra 4%) do not apply to someone who sells their existing home and buys a new one (again to live in as their only or main residence) even though another property is owned.

Nor would LTT normally be due on the inheritance of a share in a property (assuming the property which might be inherited is also in Wales; if not the SDLT rules for properties in England are similar).

Thanks for all the responses so far - for clarity. we all live in Wales and when me & Mrs G-J do move it'll still be in Wales.

Could someone explain the CGT part please, as I've not come across that before...if I'm reading some of the posts above correctly, when I inherit the second part of the property (and so own it outright), I'd be liable for CGT on the first half when the property is sold??

When you sell an asset, such as a house, the gain (difference between the value when you acquired the asset and disposed of the asset) is subject to Capital Gains Tax. When you sell a property that you’ve lived in the whole time as your only or main residence your Private Residence Relief makes your CGT liability zero. However, your parents’ house is not your only or main residence so you will not receive Private Residence Relief meaning the gain will be subject to CGT. 

and just to clarify/add, as you would only own 50% of the property, you'd pay CGT on 50% of the gain in valuen ifnthe property were sold. Your survivimg parent (if thr property were sold in their lifetime) would pay xero CGT as they'd get Private Residence Relief as Penny expained.

If you inherited the other 50% after the death of parent two, and assuming you did not move in and make it your main residence, then the calculastion would be the 50% of gain between your inheiting 50% and inheting the other 50%, and 100% of the gain from then till date of sale.

Clear as mud?

GunJack

Jeez, so by the look of it, me & Mrs will either get clobbered for stamp duty or CGT or possibly both?? So it looks like the possibly better option would be for them to not pass the first half to me at all - their driver for that in the first place was to minimize exposure to care costs to pass on as much as possible to the family, but doing it the way they are currently set up, one way or another, looks like could be care costs plus CGT at a minimum.

I must admit I'd rather they used the house to pay for care if the surviving one needed it, I don't need to inherit anything from them and our kids will get some from us

Thanks to all who've replied to this, I can pass on the info to them before they go back to their solicitors. They have mentioned me possibly going with them, which with the info here may be a good idea. 

jennifernil

RAS said:

Hi, your parents need to understand the difference between leaving you half the house, absolutely and the first deceased assigning their half to you with a life interest trust allowing the other parent to live there for the rest of their life/ until they remarry/ move into a care home. 

They should talk to their solicitor about the difference.

This is  very good advice.   As I understand it,  doing  it correctly (second method) will mean CGT will not apply  to the first half.

propertyrental

There's another potential catch.

If the local authority believe they gave away an asset (eg 50% of a property) in order to qualify for means tested care costs they could deem it to be 'Deprivation of Assets' and include the valuen that was given away when assessing their assets/eligibility.

If not, everyone going into care would just give their property away and make the tax payer liable!

It's a bit more complicated than that but you can see there are many things to consider......