Capital gains tax on a GROB (Gift with a Reservation Of Benefit)

bazray

Hi, back in 2009 my mother gifted her main property to me and was going to move into her second home, I live in the main home and it has always been my only property. After a couple of months her health was bad from diabetes so she came back to the main home so I could look after her. Her health did improve but never to the extent she could look after herself and she later was registered blind. When  she moved back in I didn’t charge her rent, so  the property is now a GROB (Gift with a Reservation Of Benefit)  which is liable for inheritance tax. Mum has unfortunately recently passed away and whilst we are sorting out probate we had the house valued by a RICS surveyor. His valuation seems a bit low and I want to know if I decide to sell it in the future am I liable for capital gains tax? 

My thoughts are that as I have lived in the property the whole time I can claim private residence relief on the gain so pay zero tax. The solicitor seems to agree but is not 100% certain, therefore does anyone her know if the private residence relief applies for sure or not?

Many thanks in advance

Nomunnofun1

bazray said:

Hi, back in 2009 my mother gifted her main property to me and was going to move into her second home, I live in the main home and it has always been my only property. After a couple of months her health was bad from diabetes so she came back to the main home so I could look after her. Her health did improve but never to the extent she could look after herself and she later was registered blind. When  she moved back in I didn’t charge her rent, so  the property is now a GROB (Gift with a Reservation Of Benefit)  which is liable for inheritance tax. Mum has unfortunately recently passed away and whilst we are sorting out probate we had the house valued by a RICS surveyor. His valuation seems a bit low and I want to know if I decide to sell it in the future am I liable for capital gains tax? 

My thoughts are that as I have lived in the property the whole time I can claim private residence relief on the gain so pay zero tax. The solicitor seems to agree but is not 100% certain, therefore does anyone her know if the private residence relief applies for sure or not?

Many thanks in advance

If it’s your main residence throughout your period of ownership any gain would be covered by private residence relief - no taxable gain!

bazray

Nomunnofun1 said:

bazray said:

Hi, back in 2009 my mother gifted her main property to me and was going to move into her second home, I live in the main home and it has always been my only property. After a couple of months her health was bad from diabetes so she came back to the main home so I could look after her. Her health did improve but never to the extent she could look after herself and she later was registered blind. When  she moved back in I didn’t charge her rent, so  the property is now a GROB (Gift with a Reservation Of Benefit)  which is liable for inheritance tax. Mum has unfortunately recently passed away and whilst we are sorting out probate we had the house valued by a RICS surveyor. His valuation seems a bit low and I want to know if I decide to sell it in the future am I liable for capital gains tax? 

My thoughts are that as I have lived in the property the whole time I can claim private residence relief on the gain so pay zero tax. The solicitor seems to agree but is not 100% certain, therefore does anyone her know if the private residence relief applies for sure or not?

Many thanks in advance

If it’s your main residence throughout your period of ownership any gain would be covered by private residence relief - no taxable gain!

Yes that's what I thought, it's just that the GROB rules seem a bit grey. Thanks for the reply.

Keep_pedalling

The main tax issue is that will not be able to claim the residential NRB for the house as the transfer occurred well before the introduction of that relief even though her home still forms part of her estate for IHT purposes. 

bazray

Keep_pedalling said:

The main tax issue is that will not be able to claim the residential NRB for the house as the transfer occurred well before the introduction of that relief even though her home still forms part of her estate for IHT purposes. 

Oh, I wasn't aware of that. My father died back in 1996 and the family house was sold and mum moved to the house I'm in now, can any of the nill rate band from him be used? thanks.

Keep_pedalling

bazray said:

Keep_pedalling said:

The main tax issue is that will not be able to claim the residential NRB for the house as the transfer occurred well before the introduction of that relief even though her home still forms part of her estate for IHT purposes. 

Oh, I wasn't aware of that. My father died back in 1996 and the family house was sold and mum moved to the house I'm in now, can any of the nill rate band from him be used? thanks.

Yes, any of his unused standard NRB can be used, so if he left everything to your mother and made no non exempt gifts within 7 years of his death then it will be the full £325k. 

What is the total value of her estate for IHT purposes?

Jeremy535897

Keep_pedalling said:

The main tax issue is that will not be able to claim the residential NRB for the house as the transfer occurred well before the introduction of that relief even though her home still forms part of her estate for IHT purposes. 

It's not something I have ever considered, but there is this discussion:
https://trustsdiscussionforum.co.uk/t/residence-nil-rate-band-where-deceased-does-not-own-residence/15165

Keep_pedalling

Jeremy535897 said:

Keep_pedalling said:

The main tax issue is that will not be able to claim the residential NRB for the house as the transfer occurred well before the introduction of that relief even though her home still forms part of her estate for IHT purposes. 

It's not something I have ever considered, but there is this discussion:
https://trustsdiscussionforum.co.uk/t/residence-nil-rate-band-where-deceased-does-not-own-residence/15165

Interesting, although I think that is only true if the gift was made prior to 8th July 2015 as that will be covered by the downsizing rule which seems to be the only way you can claim the RNRB if you die no longer owning your home. 

https://www.gov.uk/guidance/how-downsizing-selling-or-gifting-a-home-affects-the-additional-inheritance-tax-threshold

Keep_pedalling

Another thought, as the house is also the OPs home is the whole house GROB or just half of it? If you gift half of your home to a person who lives with you and continue to share household expenses then it is a PET rather than a GROB so I would have thought that would also apply to half of this gift.

bazray

Keep_pedalling said:

bazray said:

Keep_pedalling said:

The main tax issue is that will not be able to claim the residential NRB for the house as the transfer occurred well before the introduction of that relief even though her home still forms part of her estate for IHT purposes. 

Oh, I wasn't aware of that. My father died back in 1996 and the family house was sold and mum moved to the house I'm in now, can any of the nill rate band from him be used? thanks.

Yes, any of his unused standard NRB can be used, so if he left everything to your mother and made no non exempt gifts within 7 years of his death then it will be the full £325k. 

What is the total value of her estate for IHT purposes?

It's a bit more complicated as mum and dad stayed married but fell out. When dad died he left the house at the time to the children not to mum. We later sold that house and gave mum an equal share. But as he din't leave it to her then I presume she can't use any of his £325k. To clarify things a bit when the house was sold the second home as in the original post was actually my mothers only home. Around 4 years later she looked after her mum and That house was left to mum in the will. Then around 6 years later mum gifted it to me. It's a bit complicated as you can see. The current estate is valued around £483k I believe. Around 40% of dads nil rate band was left over from 1996 but I dont think its transferable as he didn't leave it to mum

bazray

Keep_pedalling said:

Another thought, as the house is also the OPs home is the whole house GROB or just half of it? If you gift half of your home to a person who lives with you and continue to share household expenses then it is a PET rather than a GROB so I would have thought that would also apply to half of this gift.

Yes the whole house is a grob, she planned to live in the other house on her own so the main house was gifted to me. As I said above she did live in the other house for a while so at one point it was her main home, and that home is left to the grandchildren but whether that still counts towards the nil rate band is something I don't know.