Second home CGT and stamp duty

darleydame

Not sure if this is the right forum but it seems impossible to get advice without paying a lot of money!
My husband and I own a second home which was bought after selling a holiday let, thus rolling over the CGT due.
My daughter and her husband live there and pay us rent to supplement our pensions, we are both over 70.
We are redoing our wills and at the moment as we have a joint tenancy it will go to the surviving spouse, then to my daughter when we are both gone.
My husband has dementia and maybe won't live the 7 years necessary if we gift outright to our daughter. Also worried that they could lose their home to pay for any care home fees.
We could go down the route of changing joint tenancy to tenants in common, adding in daughter and having unequal shares in the house which has appreciated around £80,000 in the years since purchase.
What I can't find is any information on how this will affect things. Would we have to pay anything now with regard to stamp duty and what implications for CGT?
We are under the Inheritance tax level as it stands at the moment.

I  realise this is probably too involved and I will need to seel legal advice but it helps to understand how  things would stand.

p00hsticks

darleydame said:

My husband and I own a second home which was bought after selling a holiday let, thus rolling over the CGT due.

Are you 100% sure about this bit ? I'm not an expert, but my understanding is that if the holiday let wasn't your main residence and you made a profit on it which was more than your annual CGT annual allowances then potentially there was CGT to be paid at the time. I don't believe it 'rolls over' - what you do with the money you make from selling is irrelevant. 

kimwp

Not an expert, but I think the fact that your husband has dementia means it's pretty likely that care will be needed, so transferring assets away will be considered deprivation of assets and you'll need be treated as though you still have the second house to sell to pay for care.

kimwp

The cgt rollover sounded interesting, so I had a google-
https://www.theguardian.com/money/2023/apr/10/will-capital-gains-tax-apply-if-a-sale-of-a-buy-to-let-property-is-used-to-purchase-another

There's a few articles that say the same thing.

TheGreenFrog

You probably need to establish the tax implications of your roll-over relief (presumably because your first property qualified as a furnished holdiay let) given the fact that your replacement property is not being used as a furnished holiday let (presumably it was straight after you bought it?), as well as recent abolition of the FHL regime.

sheramber

Roll over relief would only apply of you had bought another holiday let.

Buying a rental property that is let out  is not a holiday let so rollover relief would  not apply.

Who advised you that you could claim rollover relief?

darleydame

Rollover relief was in 2013 and it all went through our self assessment tax returns and have been filling in tax property pages regarding the second property rent.
It was my understanding that the CGT rolled over but will still be payable if this property is sold.
I am aware that giving it to our daughter now could cause problems if my husband goes into a home that is why I am wondering if changing to tenants in common would be better as then we no longer own all the house and if it has to be sold they will still have some money from the sale as we dont want our daughter and her husband to lose their home as they have put a lot of work and money into upkeep and improvements.
Hopefully our savings will cover care home fees if and when it becomes necessary.

kimwp

darleydame said:

Rollover relief was in 2013 and it all went through our self assessment tax returns and have been filling in tax property pages regarding the second property rent.
It was my understanding that the CGT rolled over but will still be payable if this property is sold.
I am aware that giving it to our daughter now could cause problems if my husband goes into a home that is why I am wondering if changing to tenants in common would be better as then we no longer own all the house and if it has to be sold they will still have some money from the sale as we dont want our daughter and her husband to lose their home as they have put a lot of work and money into upkeep and improvements.
Hopefully our savings will cover care home fees if and when it becomes necessary.

I'm not sure I follow the logic. If your savings don't cover care costs, then the house will be sold and the council will take what is needed to cover care home costs (and costs of selling if they have to sell). If there is money left over, you can give it to your daughter. If your daughter owns some of the house and you need her share to cover the care home fees, then it will be treated as deprivation of assets. I'm not sure that giving her part ownership will make any difference to this. (I'm not an expert in this though)

YellowCarBlueCar

darleydame said:

Rollover relief was in 2013 and it all went through our self assessment tax returns and have been filling in tax property pages regarding the second property rent.
It was my understanding that the CGT rolled over but will still be payable if this property is sold.
I am aware that giving it to our daughter now could cause problems if my husband goes into a home that is why I am wondering if changing to tenants in common would be better as then we no longer own all the house and if it has to be sold they will still have some money from the sale as we dont want our daughter and her husband to lose their home as they have put a lot of work and money into upkeep and improvements.
Hopefully our savings will cover care home fees if and when it becomes necessary.

It sounds to me as though you are going to need some help to get this sorted, as (I think) you're in a tricky position already.
Rollover relief is only applicable when selling one business asset and reinvesting the proceeds in another.  A holiday let was a business asset, but a long-term rental is not, so you now have very overdue CGT to pay based on the sale of the holiday let.  In 2013 Entrepreneur's relief would have been applicable which would have reduced the amount payable.

If you are receiving rent then you are a landlord, and your daughter a tenant with all the legal responsibilities that go with it (EICR, gas safety certs, EPC rating).  Changing ownership so that your tenant is a part owner sounds complicated to me.

If you now sell (or transfer a percentage) of the second home, that will be a separate capital gain, on which tax will be liable.

I'm sure that what you've been doing was well meant but has resulted in a few issues that need to be unpicked.

Nomunnofun1

https://www.gov.uk/business-asset-rollover-relief

poseidon1

darleydame said:

Not sure if this is the right forum but it seems impossible to get advice without paying a lot of money!
My husband and I own a second home which was bought after selling a holiday let, thus rolling over the CGT due.
My daughter and her husband live there and pay us rent to supplement our pensions, we are both over 70.
We are redoing our wills and at the moment as we have a joint tenancy it will go to the surviving spouse, then to my daughter when we are both gone.
My husband has dementia and maybe won't live the 7 years necessary if we gift outright to our daughter. Also worried that they could lose their home to pay for any care home fees.
We could go down the route of changing joint tenancy to tenants in common, adding in daughter and having unequal shares in the house which has appreciated around £80,000 in the years since purchase.
What I can't find is any information on how this will affect things. Would we have to pay anything now with regard to stamp duty and what implications for CGT?
We are under the Inheritance tax level as it stands at the moment.

I  realise this is probably too involved and I will need to seel legal advice but it helps to understand how  things would stand.

Let's consider if you do nothing and leave ownership of the property as is.

1) if husband dies without ever having to go into care you inherit his share outright at market value (a cgt free uplift by reason of his death).

2) You continue to own until death, entire property receives cgt free uplift to market value, and that is the value your daughter inherits. There maybe IHT only if your entire estate exceeds £1 million in value having regard to collective nil rate bands.

All in all a relatively clean outcome. No unnecessary cgt liabilties pre death, and joint IHT reliefs maximised. 

Putting aside issues of deprivation of assets for care home purposes, any planning that now involves  any form of a whole or partial gift of the property will trigger an immediate cgt liabilty on you and your husband, since the gift will be a disposal at market value for CGT purposes. Taking your prior rollover relief as valid at the time it was done ( although possibly questionable ), cgt will not only be by reference to the £80k appreciation on the new purchase, but on the gains previously rollover.

Accordingly, triggering early ( and perhaps unnecessary) cgt by way of some form of gift to daughter appears to militate against this as a form of cost free estate planning.