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

BR5500

Many thanks for all your help Jeremy, I wouldn't have known it was possible to vary my father's will without your suggestion (naturally, I appreciate this option could be changed in the Budget).

Am I right in thinking that a deed of variation and transferring half of the house to me will have no bearing on the current £1m combined RNRB? (again, assuming this continues after the Budget)

Am I also right in thinking that the deed of variation would not have any CGT impact in the unlikely event that my mother and I decided to move house? I understand that main residence exemption would apply here. 

As you say, it's far too late now to execute a deed of variation before the Budget but the more I think about it, the more I think it is worth going ahead with if possible after the Budget, to provide me with at least some level of additional security regarding the house should Labour decide to significantly decrease the NRB in the coming years.

I can see now that my mother gifting half the house would be pointless if she does not survive another 7 years (again this could be changed, and potentially even increased to 10 years if some pessimistic newspapers are to be believed!) While the deed of variation uses some of my father's NRB, if the transfer was directly from my mother this would use up part of her NRB so there is no real disadvantage in that sense of carrying out the deed of variation.

I would imagine that my mother and myself becoming Joint Tenants will be the most suitable option (I understand that this can be changed to Tenants in Common if beneficial in the future) but this is something I will ask my solicitor about for further clarification. I appreciate I can't ask every single detail on here without composing an extremely lengthy post!

Jeremy535897

If your father's will is varied in your favour, that will itself use some of your father's NRB/RNRB (but on your figures the transfer to you will be well within those figures), but of course your mother's estate will also be smaller by those amounts.
If you both continue to live in the house as your main residence, the fact that you would own half of it is irrelevant for capital gains tax purposes under current law. Your half of the property would have a base cost based on the value of the property, but both your and your mother's share would be exempt due to the main residence relief.
I would go with joint tenancy as then you are each assured you will inherit the other half of the property (whoever dies first) without probate applying to the house.It can be severed to become a tenancy in common.
Although your mother gives you what was the half of your father's house by deed of variation, for inheritance tax he is treated as leaving it to you. That avoids a reservation of benefit, which could be an issue if she gave you her half of the property and continued to live there rent free.

BR5500

Many thanks again Jeremy, much appreciated. I have complete clarity now in connection with the transfer.

Thankfully, the £1m NRB including RNRB hasn't been reduced in the Budget (admittedly, it has been extended to 2030 but house prices would have to rocket significantly within the next 6 years for this to effect me) so varying my father's will is more about giving me some level of security should care home fees ever crop up in the future and it will also make life at a difficult time easier regarding not having to go through probate to inherit the house. Many thanks again in connection with confirming that joint tenancy is the best option to automatically inherit the other half of the property.

Jeremy535897

I would mention that a deed of variation is not necessarily going to protect against care home fees, but as you have lived there for 25 years, I suspect that would protect you.

BR5500

Many thanks again for all your help Jeremy. My health deteriorated at the end of last year so I had to take a step back from this. Unfortunately, I've been getting a fair bit of conflicting advice from the solicitors I've approached about varying the will. 

The most important issue I feel is making sure that my parents' joint tenancy is severed by varying the will. It's crucial that my half share of the house comes direct from my father rather than as a gift from my mother. Am I right in thinking that severing the joint tenancy ensures that my father's half share of the property will come directly to me in every respect? I ask as one solicitor has said that while it's possible to carry out a deed of variation to transfer father's half of the property to me, this is only effective for tax purposes. For everything else, such as means tested benefits or care fee assessments, it would still be considered as a gift from my mother. Is this information correct? Means tested benefits do not apply to us as neither of my parents or myself have ever been in receipt of any type of benefits and don't ever intend to and care fee assessments again are not currently relevant. 

I'm very concerned that this solicitor thinks that it is not fully possible for me to receive the half share of the property from my father as the parents were joint tenants. I assumed that severing the joint tenancy by varying the will would mean that the half share comes directly to me from my father in every respect. 

The solicitor goes on to say that unless the parents were tenants in common (which they weren't), I can only receive the half share as a gift from my mother's estate rather than through my father's will under the deed of variation.

I'd greatly appreciate clarity on this as I feel is it very important for me to receive half of the property directly from my father to avoid any issues with a gift with reservation of benefit. 

The other issue concerns whether to report the varied will to HMRC. One solicitor thinks that it is not necessary to report this change to HMRC as it is the deed of variation does not create a tax liability. (Half of the value of the house is approx £200k). However, if the house isn't valued, would there be an issue in valuing the balance of the RNRB of £1m remaining if I outlive my mother? I'd estimate that half the value of the property is £200k so that would leave a balance of £800k but if the property isn't valued, how would the remaining RNRB balance be assessed by HMRC in the future?

Many thanks again for all your help - if I can clarify the severing of the joint tenancy and whether I need to report the varying of the will to HMRC I will be in a position to get the ball rolling with this.

poseidon1

BR5500 said:

Many thanks again for all your help Jeremy. My health deteriorated at the end of last year so I had to take a step back from this. Unfortunately, I've been getting a fair bit of conflicting advice from the solicitors I've approached about varying the will. 

The most important issue I feel is making sure that my parents' joint tenancy is severed by varying the will. It's crucial that my half share of the house comes direct from my father rather than as a gift from my mother. Am I right in thinking that severing the joint tenancy ensures that my father's half share of the property will come directly to me in every respect? I ask as one solicitor has said that while it's possible to carry out a deed of variation to transfer father's half of the property to me, this is only effective for tax purposes. For everything else, such as means tested benefits or care fee assessments, it would still be considered as a gift from my mother. Is this information correct? Means tested benefits do not apply to us as neither of my parents or myself have ever been in receipt of any type of benefits and don't ever intend to and care fee assessments again are not currently relevant. 

I'm very concerned that this solicitor thinks that it is not fully possible for me to receive the half share of the property from my father as the parents were joint tenants. I assumed that severing the joint tenancy by varying the will would mean that the half share comes directly to me from my father in every respect. 

The solicitor goes on to say that unless the parents were tenants in common (which they weren't), I can only receive the half share as a gift from my mother's estate rather than through my father's will under the deed of variation.

I'd greatly appreciate clarity on this as I feel is it very important for me to receive half of the property directly from my father to avoid any issues with a gift with reservation of benefit. 

The other issue concerns whether to report the varied will to HMRC. One solicitor thinks that it is not necessary to report this change to HMRC as it is the deed of variation does not create a tax liability. (Half of the value of the house is approx £200k). However, if the house isn't valued, would there be an issue in valuing the balance of the RNRB of £1m remaining if I outlive my mother? I'd estimate that half the value of the property is £200k so that would leave a balance of £800k but if the property isn't valued, how would the remaining RNRB balance be assessed by HMRC in the future?

Many thanks again for all your help - if I can clarify the severing of the joint tenancy and whether I need to report the varying of the will to HMRC I will be in a position to get the ball rolling with this.

You maybe interested in the  article  ( link below ) by Farrers (solicitors to the late Queen Elizabeth  II).

https://www.farrer.co.uk/news-and-insights/deeds-of-variation-change-a-will-after-death/#:~:text=The Variation must include an election for,Tax and / or Capital Gains Tax.&text=A Deed of Variation can sever a,intestacy) can be re-directed to someone else.

They certainly are of the view that a joint tenancy can be severed by a DOV in your circumstances, so if you have found a solicitor who also believes this is possible, they would appear to be the appropriate professional to proceed with the drafting on your behalf.

If Jeremy535897 eventually has sight of your revived thread, I will leave him to comment on the other questions you raised.

BR5500

Many thanks for your help poseidon1, much appreciated. I came across Farrer's website in my research. It certainly sounds promising that a joint tenancy can be severed by varying a will. I also found the same advice from 

Deed of Variation - Share of Joint Property Passing by Survivorship | The Legal Stop

It is interesting how some solicitors seem to think that a joint tenancy cannot be severed whereas others state that is not a problem to redirect a share of property that was held in joint tenancy.

As my last post on this thread were back in October, I have just posted a new long thread outlining all my questions. It's not really that complicated a situation as it may sound but I'm very concerned about making the wrong move and ending up with IHT issues. I appreciate some would argue it's not worth varying the will as the total estate is worth well below £1m but I feel that inheriting my father's share gives me some security should IHT rules change in the future - at least this way, I have already secured half of the property under the current rules.

Many thanks again for your interest.