IHT and CGT

AlbiTheDragon

Sorry if this has been asked and answered, I couldn’t find anything similar. I hope someone can clear up a IHT and CGT pickle. 

Grandma and Grandpa bought two houses in 1970 for £10k each. They live in A, they rent out B. 

They’re now worth £400k each. Let’s say all other assets total £10k. 

Grandpa died 10 years ago, and Grandma needs to move into a care home soon, she needs to fund this herself (despite clearly having symptoms of dementia, doctors won’t diagnose her, so no funding is on offer). She has two children who she intends to leave her entire estate to. 

Please can you correct me if I’m wrong with the following assertions:

A) Selling house B (or gifting it to her children now) today incurs a large CGT (c.19% of 387k). 

Selling house A today incurs no CGT. 

C) If Grandma dies without selling either hose, before moving to a home, there will be no IHT (assuming she passes it to her children, thanks to “main residence allowance” and married couples passing on personal allowances). CGT will only apply to the difference on value between death and sale of each property after her children sell them (less costs). 

D) *I’m less sure on this one*. If Grandma dies without selling either house, AFTER moving to a care home, there will be some IHT to pay, as her estate is worth £810,000 (less care home costs eroding this) as there is no “main residence allowance”. It would be around 40%*(£810-£650)k. 

TIA

km1500

I think a and b are true i.e if you sell A you have CGT to pay and if you sell B then because it is the main residence there is no CGT to pay

C is also correct in that you have grandpa's IHT  allowance which would pass to Grandma and then of course Grandma's own IHT allowance which if an estate containing a house (or downsizing relief) is left to a direct descendant would be two lots of 500k

as far as I am aware d is incorrect as moving into a care home has no effect on IHT as even if the house is sold to pay care fees, the fact that she owned the house means the full 500k allowance x 2 is still available.

RAS

Re-do the calculations after the budget if there are any changes to either IHT or CGT rules.

Keep_pedalling

AlbiTheDragon said:

Sorry if this has been asked and answered, I couldn’t find anything similar. I hope someone can clear up a IHT and CGT pickle. 

Grandma and Grandpa bought two houses in 1970 for £10k each. They live in A, they rent out B. 

They’re now worth £400k each. Let’s say all other assets total £10k. 

Grandpa died 10 years ago, and Grandma needs to move into a care home soon, she needs to fund this herself (despite clearly having symptoms of dementia, doctors won’t diagnose her, so no funding is on offer). She has two children who she intends to leave her entire estate to. 

Please can you correct me if I’m wrong with the following assertions:

A) Selling house B (or gifting it to her children now) today incurs a large CGT (c.19% of 387k). 

It is a little more complicated than that, CGT would apply for 50% of the house from its gain in value between 1st April 1982 and date of sale or transfer. The other half would be based on the gain from the value at the date of the death grandpa and the date of transfer.

Selling house A today incurs no CGT. 

Correct.

C) If Grandma dies without selling either hose, before moving to a home, there will be no IHT (assuming she passes it to her children, thanks to “main residence allowance” and married couples passing on personal allowances). CGT will only apply to the difference on value between death and sale of each property after her children sell them (less costs). 

Under the current rules yes, but they may change with this week’s budget.

D) *I’m less sure on this one*. If Grandma dies without selling either house, AFTER moving to a care home, there will be some IHT to pay, as her estate is worth £810,000 (less care home costs eroding this) as there is no “main residence allowance”. It would be around 40%*(£810-£650)k. 

Under the current downsizing rules no, the RNRB can still be claimed but as above that could change.

TIA

Gifting the rental property does not make sense due to the lack of funds to pay CGT and the loss of rental that can be used to help pay residential care costs. Selling the home if she goes in to care involves no CGT or loss of income.

Savvy_Sue

Unrelated to the financial questions: does someone have Power of Attorney for Grandma? Or Deputyship? Because if not, no-one will be able to sell anything, so crack on with that.

Also, diagnosing Grandma with dementia wouldn't automatically give any financial help. If she had to be sectioned as a danger to herself or others, I believe that would unlock some funding, but it seems to me rare that sectioning is required.

Keep_pedalling

Well no changes in the budget that would put this estate in IHT territory, so all the above still applies. If she needs to go in residential care it would be better to fund it through the sale of her home not the rental property to avoid both CGT and loss of income.