IHT / CGT on property gift with reservation

Skiptonian

In 1997 my mother gifted her house to myself & two siblings. She continued to live in the house until she had to enter a residential home last October, and sadly she passed away in March. We never charged rent and mum was the sole occupier throughout the period from 1997 to 2025.
My understanding is that as she maintained full "rights of ownership" and did not pay any rent to us, the house is treated as a "Gift with reservation of title" and as such would be treated as an asset within mum's estate for the purposes of Inheritance Tax. As the value of her estate is below £500,000 no Inheritance Tax will be due.
 As such, we understand that the potential for liability for Capital Gains Tax would only be effective from the date at which mum ceased to live at home - ie any gain in value from that date to the date of sale, which will be minimal.
Is our interpretation correct, or would CGT be due based on the value of the property when gifted in 1997 and the sales value today? 
The assumption is that the gifted property is either part of the estate or outside it as a gift generating a CGT liability - it surely can't be both.

HappyHarry

The property became yours in 1997 and so CGT will be based on the acquisition value as it was then.

As the property is a gift with reservation it still forms part of your mother’s estate for inheritance tax.

Unfortunately, it can be, and will be both -  based on the detail provided.

This is a common issue often not considered which is why anyone asking about such a plan on these forums is always prompted not to do so and to take professional advice.

Keep_pedalling

As your mother gave her house away way before the introduction of the residential NRB you cannot claim that exemption. If she was a widow and inherited her husband’s estate that is not a problem as the transferable NRB is available taking her total exemptions to £650k. If she was not a widow then you only have £325k to work with, everything over that will be subject to IHT. 

Once sold each of you will also have a CGT liability based on the increase in value of the property since 1997 

poseidon1

Skiptonian said:

In 1997 my mother gifted her house to myself & two siblings. She continued to live in the house until she had to enter a residential home last October, and sadly she passed away in March. We never charged rent and mum was the sole occupier throughout the period from 1997 to 2025.
My understanding is that as she maintained full "rights of ownership" and did not pay any rent to us, the house is treated as a "Gift with reservation of title" and as such would be treated as an asset within mum's estate for the purposes of Inheritance Tax. As the value of her estate is below £500,000 no Inheritance Tax will be due.
 As such, we understand that the potential for liability for Capital Gains Tax would only be effective from the date at which mum ceased to live at home - ie any gain in value from that date to the date of sale, which will be minimal.
Is our interpretation correct, or would CGT be due based on the value of the property when gifted in 1997 and the sales value today? 
The assumption is that the gifted property is either part of the estate or outside it as a gift generating a CGT liability - it surely can't be both.

No,  unless one other of you and your sibling  co occupied the property with your mother as your sole residence,  there will be a substantial  liability to CGT on the gain accruing from the date of the original gift right up until you sell.

The fact that your mother is 'deemed' to own the property for IHT purposes on her death ( due to the operation of GROB) does not vacate the outright gift to you both for  CGT purposes. That  is to say, even if the property were liabilty to IHT on your mother's death, CGT on eventual sale by you both would remain in point.

Sadly your mother was most unwise in gifting her home to you in this way.

From a tax planning point of  view, back in1997  it would have made more sense for it to have been  placed in trust for her with a right to occupy (if originally inherited from your father), or simply retained in her personal ownership until death.

To answer your last question therefore, regrettably both CGT and IHT can indeed arise on the same asset on death , as now occurred in your case.

Hopefully this sad outcome will be a warning to other parents who feel inclined to gift their homes to their children ( for whatever reason), without understanding the extreme tax consequences on the surviving children.

Jeremy535897

Are you sure that your mother just gave the house to you and your sister, or was there some sort of trust involved?

Bookworm225

as Jeremy queries, if there was a trust the CGT position may be different

if there was not, then your understanding of CGT is flawed and your mother landed you with the "double tax whammy"... a property subject to both CGT and IHT 

Skiptonian

We are chasing the solicitor who drafted the documentation, however, our understanding is that it was a Deed of Gift.
It appears she may have been badly advised, however, we believe that the primary intention was to ensure the house stayed within the family in the event that mum had remarried..
thanks for your feedback.

poseidon1

Skiptonian said:

We are chasing the solicitor who drafted the documentation, however, our understanding is that it was a Deed of Gift.
It appears she may have been badly advised, however, we believe that the primary intention was to ensure the house stayed within the family in the event that mum had remarried..
thanks for your feedback.

Hmm, does regrettably sound like an outright gift, otherwise it would have been a Deed of Trust. Hopefully sight of the documentation will clarify the position.