CGT/IHT Implications of Mother Transferring House into Joint Names with Son (both live at the house)

BR5500

My mother and I recently saw a solicitor for IHT advice and the solicitor advised my mother to transfer either all or 50% of the house we both live in to me (so we would be joint tenants or tenants in common) in order to protect me from potential care home fees and IHT, should the IHT nil band threshold be reduced in the future.

My father unexpectedly passed earlier this year - my parents were tenants in common or joint tenants so when my father passed, he was taken off the deeds and my mother become the sole owner of the house. The solicitor suggested that if the house was transferred into joint names, if my mother passes before me, she would be taken off the deeds and the house would be in my name without any need to go through probate and that I would be the sole owner in the same way as my mother was. This all sounded far too easy to be true to me! 

Am I right in thinking that my mother would need to live at least another 7 years should the IHT threshold be lowered enough to bring her estate into IHT?

Would it be more beneficial for my mother and I to be 'tenants in common' rather than 'joint tenants' for the purpose of potential CGT or IHT (if the threshold is lowered) or is there no real difference in either categories for CGT and IHT purposes?

Also, wouldn't transferring the house into joint ownership with my mother and myself immediately trigger some CGT implications - the house was purchased in the late 1990s for £100k and is now worth £375k.

Even if CGT wasn't triggered now, would it become an issue if I was ever to sell the house in the future? (admittedly, I am unlikely to move). Would I have to pay CGT on my mother's passing, regardless of whether I sold or stayed in the house?

My parents were either 'joint tenants' or 'tenants in common'. If I am to effectively replace my father in the joint ownership, would an IHT declaration need to be made now to assess the value of my father's share. Am I right in assuming this is a 'deed of variation' or would this not need to be carried out in this case as my mother is effectively gifting me half of her house when she is the sole owner rather than passing on my father's share to me?

Would the house have to be valued at the time of the transfer and I would I have to pay half the household bills from the date of the transfer to be considered by HMRC as a tenant in common?

It's important to note my mother's estate is worth way below the current £1m married couple threshold so unless this threshold drops below £600k, no IHT is likely to be due unless house prices rise dramatically in the next few years.

I appreciate the solicitor's point re: protecting half of the house from care home fees but I understand that local councils would no doubt fight the house transfer to obtain their fees. 

Should my mother outlive me, would it be easy to take me off the deeds in the same way as my father was or would my mother encounter complications with this?

While the solicitor suggested transferring into joint names would make things extremely simple - if I outlive my mother, I would simply take my mother off the deeds, I'd imagine this transfer is likely to raise some issues with HMRC. I'd greatly appreciate any advice from anyone who's in a similar position.  

Due to ill health, I've lived with my parents for the last 25 years and ideally, I'd like to stay on in the family home should I outlive my mother but I appreciate that potential care home fees or a reduction in IHT thresholds could take the home away from me. I was grateful that our solicitor is trying to offer me some increased security but before going ahead with the solicitor's suggestion, I wished to check if there are any downsides to putting the house into joint names. I'm only referring to potential IHT or CGT implications rather than me getting married and divorced etc - this definitely won't be happening!

Many thanks in advance and apologies for such a long message!

Jeremy535897

If you want to protect against a possible future inheritance tax liability, vary your father's will (which can also be used to sever the joint tenancy). That would mean that, on your father's death, half the house is treated as passing to you for inheritance tax purposes (it's a little more complex for capital gains, but as it is your mother's main residence, there should be no impact). There are no reservation of benefit issues. But it must be done within 2 years of his death.
This may also shield half the house's value from a council claim for deprivation of assets, but only where there is no reason (medical usually) at this stage that your mother could be expected to need to go into a care home. Furthermore, it seems eminently reasonable to reflect the fact that the house has been your home for many years anyway.
People on this forum legitimately raise the issue of deprivation of assets, but if you have lived there for 25 years, and are merely reflecting that fact, and your mother is in good health, the risk is low, and there is lots of information here:
https://www.ageuk.org.uk/information-advice/care/paying-for-care/paying-for-a-care-home/deprivation-of-assets/

elsien

The property would be disregarded for care home fees anyway if you were still living there, if you were over 60 or if you were “incapacitated.”
The nature/impact of your health issues may fall into that anyway. 

Keep_pedalling

GCT does not apply as this is your mother’s primary residence. If your mother made you a joint owner 50/50 then under the current rules the gift would fall out of her estate after 7 years. Giving the whole house away would be foolish and the additional 50% would not fall outside her estate as it would be classed as a gift with reservation of benefit.

Not sure if varying the fathers will will be of use in this case as it will simply reduce the transferable NRB available on mother’s estate and if the house is worth more than £650k it would mean needing to claim the residential NRB so an IHT return will need to completed. 

What is  of the house? 

Jeremy535897

OP said current value is £375,000.

BR5500

Many thanks for the replies, they are much appreciated. 

I was concerned that putting the house into joint ownership with my mother and myself could result in triggering CGT but it seems as though CGT does not apply as it's my mother's main residence. I did not realise before that me living here for the last 25 years also helps. My mother is currently in good health for her age and has no risk of needing care.

Given the relatively low value of the house (£375k), would it be worth varying my father's will as this will instantly use up some of his transferable NRB (£500k less half the value of the house) so should house prices rise dramatically in the next few years, I'd have a lower NRB remaining.

The solicitor we saw gave the impression (if I understood correctly) that gifting the whole house or 50% would make no difference but I can see how gifting the whole house would be foolish as wouldn't this mean my mother would have to pay me rent to live in the house?

Many thanks for confirming that gifting 50% of the house would fall out of my mother's estate after 7 years - as I say though, the current value of the entire estate is well under the current £1m threshold and I'd estimate the maximum value of the estate to be under £600k. I know this begs the question, why worry about transferring the house into joint names but I just feel that it does give me a greater element of security and will enable me to continue living in the house without needing to go through probate. It could also secure half the value of the house from care home fees.

Am I right in thinking that should my mother outlive me, it will be an easy procedure for me to be removed from the deeds? (in the same way my father was). 

If my mother was to pass within 7 years of transferring the house into joint names, how would the value of half the house be assessed at the point of my mother's passing? Does the house need to be valued at the point of transfer in case it falls within the 7 years or is half the value of the house valued at the date of my mother's passing?

Can I just confirm that transferring the house into joint names this year would not have any bearing on me having to pay CGT if I sold the house in years to come? While this is pretty unlikely, I would naturally rather have the option of being able to sell in the future as though I'm the normal owner rather than being tied to the house for life due to a fear of CGT?

Finally, if my mother and I decide to transfer the house into joint names, would it be best to become 'joint tenants' or 'tenants in common' and can I just clarify if I need to pay half the household bills once the transfer is completed or is this not neccessary?

Bookworm105

who pays the household bills is a matter between your mother and you to agree on, it has nothing to do with who owns it 

please learn the difference between JT and TIC since it matters when you start thinking in terms of % owned in certain circumstances

for as long as you live in it as your main residence your get CGT relief for that time period. Move out but continue owning it and you don't get CGT relief so when finally sold you would have some CGT liability. There are countless posts explaining the mechanics of PRR - Private Residence Relief & CGT

BR5500

Many thanks for your help. 

Re: the Private Residence Relief & CGT, am I right in assuming that if I sold the property in the future (having been previously a joint owner and later a sole owner) I wouldn't be subject to any CGT triggered by the earlier joint ownership transfer as long as I sell the house and move to another place? 

As far as I can tell from my research so far, my mother and myself becoming 'Joint Tenants' is likely to be the most suitable option as that way, when one of us passes, the property automatically passes to the sole name of the surviving joint owner. This is something I will consult with the solicitor about.

I must confess IHT planning isn't really my area but I'm sure all the recent speculation about the Budget has led many to looking into their options, whereas in the past IHT has been a bit of a 'head in the sand' / 'many years away' subject for me!

Jeremy535897

"The solicitor we saw gave the impression (if I understood correctly) that gifting the whole house or 50% would make no difference but I can see how gifting the whole house would be foolish as wouldn't this mean my mother would have to pay me rent to live in the house?"

My understanding is that your father and mother owned the house equally as joint tenants. Varying your father's will and severing the joint tenancy reduces his transferable nil rate band, but so what? The whole point is that if Labour dramatically reduces the nil rate band for the future, by varying the will your father will be deemed to have left his share of the house to you when he died, before any change is made. (They could of course change the rules for deeds of variation as well.)
There is absolutely no point at all in your mother giving you her share of the house, as it would be a gift with reservation, and it would remain part of her estate unless she paid you a full market rent, potentially creating an income tax on you for no benefit.

Albermarle

Suggest you wait until the budget before worrying about IHT changes. There is a lot of fevered speculation, most of which will be wrong.
It seems unlikely that the basic mechanics and levels when IHT will be paid will change anyway. 

Jeremy535897

Albermarle said:

Suggest you wait until the budget before worrying about IHT changes. There is a lot of fevered speculation, most of which will be wrong.
It seems unlikely that the basic mechanics and levels when IHT will be paid will change anyway. 

I think that's a given. I can't imagine a solicitor drafting and executing a deed of variation by 29 October.