CGT or IHT on jointly owned property

letsgetdowntobusiness

Hello all, I am looking for some clarification on what to expect when family property is sold.

Background - Dad passed away many years ago and at that time the family home was put in to my name and my mothers equally.  This is her home still and I have not lived there for 30+ years.

My mothers will states that when she passes that her 50% of the property will pass to me.

What tax implications are there for the 50% that I have owned for  nearly 20 years and then for the other 50% that I will inherit at some point in the future?

I appreciate that the tax laws relating to the 2nd 50% may change as my mother is still alive and hopefully will be for a long time, so more interested in the implications for the 50% that I inherited a long time ago.

Any advice appreciated, thank you for your time.

[Deleted User]

The answer is that a house, potentially free of taxes before the transfer of 50%, now will attract Capital gains tax and, depending on numbers, IHT also. 

For IHT, because your mother still lives in the property, it will be regarded as a gift with reservation of benefit - as if it never happened. Of course IHT may never be an issue as your mother’s estate could well fall below the IHT threshold, especially if she is able to benefit from your father’s unused exemption. Either way the full value of the house will form part of the estate. 

For capital gains - when the house is sold YOU will be liable to capital gains tax on half of (proceeds less improvement costs less costs of sale and purchase less the value at the time of transfer). Had the transfer never happened, of course, capital gains tax would never be an issue. 

Many many people have done exactly what your mother did - most of the time it turns out to be costly. 

letsgetdowntobusiness

Thank you Ferro, I suspected as much, but this is what was advised at the time by the solicitors. Hindsight is a wonderful thing!  The remaining 50% will only pass to me when my mother passes away, she is not gifting it to me now, at some point we may need to sell to pay for care, down the line. We are taking advice on IHT at the moment as the full estate will be over thresholds as things currently stand. 

Jeremy535897

[Deleted User] said:

The answer is that a house, potentially free of taxes before the transfer of 50%, now will attract Capital gains tax and, depending on numbers, IHT also. 

For IHT, because your mother still lives in the property, it will be regarded as a gift with reservation of benefit - as if it never happened. Of course IHT may never be an issue as your mother’s estate could well fall below the IHT threshold, especially if she is able to benefit from your father’s unused exemption. Either way the full value of the house will form part of the estate. 

For capital gains - when the house is sold YOU will be liable to capital gains tax on half of (proceeds less improvement costs less costs of sale and purchase less the value at the time of transfer). Had the transfer never happened, of course, capital gains tax would never be an issue. 

Many many people have done exactly what your mother did - most of the time it turns out to be costly. 

If father left his 50% of the property on his death to the son, how can there be a reservation of benefit?

xylophone

Did father's will leave the OP his share of the property?

Or was there a variation of the will to this effect?

[Deleted User]

Jeremy535897 said:

[Deleted User] said:

The answer is that a house, potentially free of taxes before the transfer of 50%, now will attract Capital gains tax and, depending on numbers, IHT also. 

For IHT, because your mother still lives in the property, it will be regarded as a gift with reservation of benefit - as if it never happened. Of course IHT may never be an issue as your mother’s estate could well fall below the IHT threshold, especially if she is able to benefit from your father’s unused exemption. Either way the full value of the house will form part of the estate. 

For capital gains - when the house is sold YOU will be liable to capital gains tax on half of (proceeds less improvement costs less costs of sale and purchase less the value at the time of transfer). Had the transfer never happened, of course, capital gains tax would never be an issue. 

Many many people have done exactly what your mother did - most of the time it turns out to be costly. 

If father left his 50% of the property on his death to the son, how can there be a reservation of benefit?

I didn’t read it as that. I read it that father died, estate went to mother and then mother gifted 50% to son. 

What you say is more likely but needs clarified as per xylophone above.

Keep_pedalling

Do you know what the value of the house was when you inherited it 20 years ago? Your share will certainly be subject to CGT if the property is sold, and his bequest to you would limit the amount of transferable NRB that can be passed to your mother’s estate but without that information we can’t say what the implications for IHT are 

sheramber

 but this is what was advised at the time by the solicitors. Hindsight is a wonderful thing!  

That sounds like it was done after the mother inherited the house after the father's death.

Keep_pedalling

[Deleted User] said:

The answer is that a house, potentially free of taxes before the transfer of 50%, now will attract Capital gains tax and, depending on numbers, IHT also. 

For IHT, because your mother still lives in the property, it will be regarded as a gift with reservation of benefit - as if it never happened. Of course IHT may never be an issue as your mother’s estate could well fall below the IHT threshold, especially if she is able to benefit from your father’s unused exemption. Either way the full value of the house will form part of the estate. 

For capital gains - when the house is sold YOU will be liable to capital gains tax on half of (proceeds less improvement costs less costs of sale and purchase less the value at the time of transfer). Had the transfer never happened, of course, capital gains tax would never be an issue. 

Many many people have done exactly what your mother did - most of the time it turns out to be costly. 

If the transfer was done using a deed of variation then it won’t be regarded as a gift with reservation of benefit, so some clarity from the OP is needed on exactly what happened. 

[Deleted User]

Keep_pedalling said:

[Deleted User] said:

The answer is that a house, potentially free of taxes before the transfer of 50%, now will attract Capital gains tax and, depending on numbers, IHT also. 

For IHT, because your mother still lives in the property, it will be regarded as a gift with reservation of benefit - as if it never happened. Of course IHT may never be an issue as your mother’s estate could well fall below the IHT threshold, especially if she is able to benefit from your father’s unused exemption. Either way the full value of the house will form part of the estate. 

For capital gains - when the house is sold YOU will be liable to capital gains tax on half of (proceeds less improvement costs less costs of sale and purchase less the value at the time of transfer). Had the transfer never happened, of course, capital gains tax would never be an issue. 

Many many people have done exactly what your mother did - most of the time it turns out to be costly. 

If the transfer was done using a deed of variation then it won’t be regarded as a gift with reservation of benefit, so some clarity from the OP is needed on exactly what happened. 

It was either::

a) inherited from Dad directly through the will
b) inherited under a DOV
c) transferred from Mum afterwards. 

I would be hopeful that it wasn’t the latter but the post wording suggested, to me, that it may have been. 

As you say - clarification needed. 

letsgetdowntobusiness

Apologies for being offline, I can confirm that this was done as a DOV after my father died, if that changes the situation!