Mother’s house and inheritance tax

Whiskey61

My mother transferred her home to me and my two brothers in 2002 but she continued to live there rent free until her death in September this year. The value of the house is £300k. Do we have to pay CGT when we sell it or Is it a gift with received benefit as she didn’t pay a commercial rent (or any rent) ? From the HMRC website it looks like it would remain part of her estate for IHT purposes an
d she has no other assets. Is it IHT or CGT? (Sorry if this sounds like an exam question!)

Keep_pedalling

Her estate will have no IHT to pay as the value is below her NRB, but unless you and your siblings were living with her each of you will have a CGT liability based on the gain in value since 2002. 

Had she not made the mistake of transferring the property there would be zero tax to pay.

Grumpy_chap

Whiskey61 said:

My mother transferred her home to me and my two brothers in 2002 but she continued to live there rent free until her death in September this year. The value of the house is £300k. Do we have to pay CGT when we sell it or Is it a gift with received benefit as she didn’t pay a commercial rent (or any rent) ? From the HMRC website it looks like it would remain part of her estate for IHT purposes an
d she has no other assets. Is it IHT or CGT? (Sorry if this sounds like an exam question!)

Sorry for your loss.

Yes, you are correct that the house remains part of your mother's Estate for IHT purposes.  There may not be any IHT payable if the Estate is below the threshold.

You and your brothers will have CGT to pay on sale of the house.

This is a case where action taken to avoid no tax (or single) tax now results in a tax liability (or second tax liability) arising.  I am sure that the Chancellor will be very grateful.

Whiskey61

thanks. They always get you!

Bookworm105

Whiskey61 said:

thanks. They always get you!

not if people pay for professional tax advice
Mother appears not to have had an estate that would be above IHT threshold, so by her actions you are now involuntarily paying CGT which you would otherwise have avoided if she had not tried to DIY her own estate.

it should have been zero IHT and CGT 

Keep_pedalling

Whiskey61 said:

thanks. They always get you!

In this case only because of a bad decision to transfer the house otherwise there would have been no tax to pay. 

Do you know what the value of the house was in 2002? If not you are going to need a professional valuation. 

poseidon1

Bookworm105 said:

Whiskey61 said:

thanks. They always get you!

not if people pay for professional tax advice
Mother appears not to have had an estate that would be above IHT threshold, so by her actions you are now involuntarily paying CGT which you would otherwise have avoided if she had not tried to DIY her own estate.

it should have been zero IHT and CGT 

Indeed. Seems to be alot of this DIY tax planning going on, much of it now fueled by nonsense social media posts - Tik Tok and Facebook are prominent examples I have seen.

Keep_pedalling

poseidon1 said:

Bookworm105 said:

Whiskey61 said:

thanks. They always get you!

not if people pay for professional tax advice
Mother appears not to have had an estate that would be above IHT threshold, so by her actions you are now involuntarily paying CGT which you would otherwise have avoided if she had not tried to DIY her own estate.

it should have been zero IHT and CGT 

Indeed. Seems to be alot of this DIY tax planning going on, much of it now fueled by nonsense social media posts - Tik Tok and Facebook are prominent examples I have seen.

A lot of it is more to do with avoiding care costs rather than IHT, but again people don’t understand that deliberate deprivation of assets has no time limit.

Cobbler_tone

Keep_pedalling said:

poseidon1 said:

Bookworm105 said:

Whiskey61 said:

thanks. They always get you!

not if people pay for professional tax advice
Mother appears not to have had an estate that would be above IHT threshold, so by her actions you are now involuntarily paying CGT which you would otherwise have avoided if she had not tried to DIY her own estate.

it should have been zero IHT and CGT 

Indeed. Seems to be alot of this DIY tax planning going on, much of it now fueled by nonsense social media posts - Tik Tok and Facebook are prominent examples I have seen.

A lot of it is more to do with avoiding care costs rather than IHT

True. A (retired) friend just lost his father. My friend owned his dads house and lived on the same street. TBF he was amazing with his dad, took him out every day, took him his meals and checked in several times a day. On paper his dad had under the threshold (£20 odd grand in the bank) to be entitled to support. The house was funded to be adapted, he (finally) got some additional support to relieve some of the burden. When his dad passed away he sold the house and paid around £8k CGT. He is a millionaire (tight as they come, it'll be in cash, gold and ISAs) but apart from replacing his car every year and the odd singles holiday he doesn't spend a lot. We are all built differently.

Albermarle

poseidon1 said:

Bookworm105 said:

Whiskey61 said:

thanks. They always get you!

not if people pay for professional tax advice
Mother appears not to have had an estate that would be above IHT threshold, so by her actions you are now involuntarily paying CGT which you would otherwise have avoided if she had not tried to DIY her own estate.

it should have been zero IHT and CGT 

Indeed. Seems to be alot of this DIY tax planning going on, much of it now fueled by nonsense social media posts - Tik Tok and Facebook are prominent examples I have seen.

Even predating TikTok etc. it seems to be a long held  common misconception by large parts of the public, that transferring homes and using trusts was an easy way to avoid tax.
Apart from the fact that it often does not work, it can bring a lot of general headaches in untangling situations at a later date.

badmemory

Some of the advertising does not help.  I also don't get why someone would be happy to consign themselves to an over my dead body care home if they could have afforded better.  Although having said that the worst one I ever went in was the most expensive.  We had an appointment to view for mother & we walked in & my sister gagged & walked straight back out again.