Please some clarification!

Ilovemycat12

Hi all. My mum died over 12 years ago leaving my dad in the family home which is mortgage free. 

He did a transfer of equity between myself and my sister 10 years so all three of us are on the deeds and continued living there alone but not paying market rent ever since. 

He was adamant that it be done that way. 

He’s declined over the last 2 years so my sister has moved in to give him extra support but it does look like he will need to go into a nursing home at some point pretty soon. 

I would say the house is worth around £475k and he has savings of around £200k 
My sister has not been paying any rent just contributing half to all of the bills and she receives carers allowance to look after dad as she’s retired and over 60 and has lived with him for around 2 years. 

Say he does go into a nursing home soon which will be privately funded and uses up all the available savings the way I understand it is that the council could not press for the sale of the house for his share as my sister lives there so what would happen then - would the council then pay or would they have a claim on his third share on death to be re paid ? 
The other scenario being he moves into a nursing home and dies before all the savings run out leaving savings. 

What IHT would be paid in each situation ? 

As my dads third is still in the “ estate “ per se on his death would that third be counted or would it revert to 50/50 share on the house between my sister and I on his death ? 

I’m getting conflicting advice here. 

Advice really welcome - Thank you ! 

Keep_pedalling

Your father is in the fortunate position of being able to self fund for at least three years through his savings so this is, unfortunately, unlikely to be an issue. Should the money run out the house would be disregarded an a LA financial assessment unless she also owns a property of her own.

The whole house forms part of his estate for IHT purposes but with the transferable NRB from your mother’s estate and the residential NRB his estate is well out of IHT territory even if he died tomorrow. 

Gifting a share of the house to each of you will have created a capital gains tax liability for you and your sister which will kick in when the house is eventually sold or if your sister buys out your share if she wants to go on living there.

poppystar

Keep_pedalling said:

Your father is in the fortunate position of being able to self fund for at least three years through his savings so this is, unfortunately, unlikely to be an issue. Should the money run out the house would be disregarded an a LA financial assessment unless she also owns a property of her own.

The whole house forms part of his estate for IHT purposes but with the transferable NRB from your mother’s estate and the residential NRB his estate is well out of IHT territory even if he died tomorrow. 

Gifting a share of the house to each of you will have created a capital gains tax liability for you and your sister which will kick in when the house is eventually sold or if your sister buys out your share if she wants to go on living there.

Wouldn’t the sister living there for the past two years mean she would be exempt from having to pay CGT, at least if she owns no other property?

p00hsticks

poppystar said:

Keep_pedalling said:

Your father is in the fortunate position of being able to self fund for at least three years through his savings so this is, unfortunately, unlikely to be an issue. Should the money run out the house would be disregarded an a LA financial assessment unless she also owns a property of her own.

The whole house forms part of his estate for IHT purposes but with the transferable NRB from your mother’s estate and the residential NRB his estate is well out of IHT territory even if he died tomorrow. 

Gifting a share of the house to each of you will have created a capital gains tax liability for you and your sister which will kick in when the house is eventually sold or if your sister buys out your share if she wants to go on living there.

Wouldn’t the sister living there for the past two years mean she would be exempt from having to pay CGT, at least if she owns no other property?

Not completely exempt, no. She'll be entitled for some PPR relief given that it's been her main residence for a couple of years, but it sounds like she wasn't living there for the first 13 or so years it was put partially into her name. Hopefully there was a valuation done and recorded at the time the ownership was amended. 

Olinda99

As far as I understand it the house has been owned one-third each for the past ten years

If this is so then one third will not be liable to cgt because this will be your father's main residence

one third will not be fully liable to CGT but pro-rata'd according to how many of those 10 years it has been your sister's main residence

The other third (your share) will be fully liable to CGT

You will each have your own allowance of course at the rate of whatever it is when the property is sold

As far as IHT is concerned because your father continued living their despite giving you and your sister 1/3 each then that is what is called a reservation of benefit and thus the whole house will go into the estate for IHT purposes

Ilovemycat12

Thank you so much for all the comments. 

I own my own home and so does my sister but she rents it out to live with dad.
Up until 2 years ago she was living in her own home but there wasn’t a valuation done when our names were added to the deeds of that I am pretty sure..
from your answers it appears that this was a terrible decision financially ( I was living abroad at the time and admit to taking my eyes off the ball here ) the whole house will be included in IHT, capital gains tax will be zero for dad, pro rata for my sister depending on how long she is there and full for me ? 

This is beyond depressing, it sounds like we will be left with very little after everything is taken from the pot. 

RAS

Even if CGT is payable, you'll still be left with the bulk of the value of your third share, plus half of whatever is leftover from dad's share. Not to be sniffed at.

And there may not be much IHT to pay.

But you'd probably have been better off if you'd just inherited the house jointly with your sister.

At least you aren't in the situation faced by another poster. Their dad passed the whole mortgage free house over to his two children. One is now facing divorce so the potential ex will be entitled to 50% of her share, possibly the largest asset of the marriage.

You'll understand why people here suggest it needs thinking about carefully.  An IPDI trust in favour of your self and your sister set up by a deed of variation would have protected half the value from IHT, CGT and care home fees. And you'd still have been able to inherit his share without CGT and probably without IHT.

Ilovemycat12

Thank you SO much. 

Ilovemycat12

Is there anything practically we can do now ?