CGT on a Property that was gifted to siblings 25 years ago and Mother lived in rent free leasehold

senor_naranja

Good Afternoon and thanks in advance for any advice.
In 2001 my father died and the house that my mother and father owned outright was gifted to myself and my two siblings. The Land Registry recorded that fact that the 3 of us held the freehold and my mother held a 0 cost leasehold for a period of 30 years.

Earlier this year my my mother died and we decided to sell the house. as part of the sale we had a solicitor serve notice on the lease as it was part of the condition that a 1 months notice period could be given to end the lease. 
My question is do we (me and my two siblings) have to pay CGT on the difference in price between the value of the house in 2001 and the price that it was sold for in 2025 , or is any relief available to us as we rented the property to our mother rent free and did not live in the property ourselves at any point during this period.
Many Thanks
J

Brie

Gifted or inherited?  Or did mom inherit the house and then she give it to you?

mybestattempt

senor_naranja said:

Good Afternoon and thanks in advance for any advice.
In 2001 my father died and the house that my mother and father owned outright was gifted to myself and my two siblings. The Land Registry recorded that fact that the 3 of us held the freehold and my mother held a 0 cost leasehold for a period of 30 years.

Earlier this year my my mother died and we decided to sell the house. as part of the sale we had a solicitor serve notice on the lease as it was part of the condition that a 1 months notice period could be given to end the lease. 
My question is do we (me and my two siblings) have to pay CGT on the difference in price between the value of the house in 2001 and the price that it was sold for in 2025 , or is any relief available to us as we rented the property to our mother rent free and did not live in the property ourselves at any point during this period.
Many Thanks
J

This is the official HMRC guidance which explains that dependant relative relief is not available if the property was acquired after 5 April 1988:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65550


So, yes the capital gain on disposal will be calculated using the sale price (consideration on disposal) in 2025 less the market value on the date it was acquired (gifted or inherited) in 2001 less any incidental costs (legal fees etc)

Keep_pedalling

Assuming after your father died you mother had 100% ownership before she gifted it to you, yes you will have will all have a CGT liability on the gain in value since she made the gift.

As she continued to live there rent free then this would have been a gift with reservation of benefit, so the 7 year rule does not apply so the house still forms part of her estate for IHT purposes and because it was given away way before the introduction of the residential NRB that is not claimable, so you could be hit with a IHT and CGT double whammy. Gifting your home away is nearly always a terrible idea and this is an example of why that is.

senor_naranja

Brie said:

Gifted or inherited?  Or did mom inherit the house and then she give it to you?

Mum Inherited and then gifted to the 3 of us 
Thanks

Keep_pedalling

senor_naranja said:

Brie said:

Gifted or inherited?  Or did mom inherit the house and then she give it to you?

Mum Inherited and then gifted to the 3 of us 
Thanks

Unfortunately that was a terrible decision and what I said above applies.

What is the current value of the house and what did she have in the way of other assets? If she had inherited everything from her husband then there will be no IHT due if the total value of those two things is under £650k. If over that you will need to do an IHT return and pay any IHT due within 6 moths of her death. 

When the house is sold you will all have an individual CGT liability which needs to be paid within 60 days of the sale. 

poseidon1

senor_naranja said:

Good Afternoon and thanks in advance for any advice.
In 2001 my father died and the house that my mother and father owned outright was gifted to myself and my two siblings. The Land Registry recorded that fact that the 3 of us held the freehold and my mother held a 0 cost leasehold for a period of 30 years.

Earlier this year my my mother died and we decided to sell the house. as part of the sale we had a solicitor serve notice on the lease as it was part of the condition that a 1 months notice period could be given to end the lease. 
My question is do we (me and my two siblings) have to pay CGT on the difference in price between the value of the house in 2001 and the price that it was sold for in 2025 , or is any relief available to us as we rented the property to our mother rent free and did not live in the property ourselves at any point during this period.
Many Thanks
J

What I find very unusual about this arrangement is your statement the house was gifted by your mother subject to a 30 year leaseback at zero rent.

If this arrangement was formally documented including the lease being notified to the land register (as you indicated occurred) , this may have a potentially disadvantageous effect on the base value of the property for CGT purposes at date of gift.

What I am saying  is the value of a property burdened with an enforceable 30 year lease at no rent will not be its market value at that time but a much lesser amount on the basis that an arms length purchaser would not get  vacant possession or a market rent.  This is just one complication from a CGT point of view.

Turning to the IHT reporting. On one view of this arrangement this would seem to be a straight forward gift with reservation of benefit, leading to the entire market value of the property at date of death falling with the mother's estate. However is that correct?

What are the terms of the 30 year lease? If the lease did not automatically terminate on the mother's death but continued until relevant notice was given to terminate , is there a value to be attributed to the rump of the lease, which presumably remains a separate and distinct asset of the estate until it is extinguished. It certainly cannot be ignored as if it does not exsist.

I would suggest, that the exsistence of this lease has introduced complex  land law, IHT, CGT and valuation issues way beyond the knowledge and experience of this forum to offer informed views.

I have to ask whether the solicitor handling the property sale is also dealing with the estate IHT reporting aspects on your behalf.  If so, have they raised with you any of  complications highlighted above? The question you have raised here does make me wonder the extent of professional advice you may have received so far, 




 

silvercar

At the point the lease was written, letting relief existed and that would have helped reduce the CGT, now that relief is no longer available to you. The base point of the value of a property let at zero rent is lower than market rent, you may need to get an actuarial valuation which would be based on the life expectation of your mother at the time the lease was granted.

WIAWSNB

poseidon1 said:

senor_naranja said:

Good Afternoon and thanks in advance for any advice.
In 2001 my father died and the house that my mother and father owned outright was gifted to myself and my two siblings. 

Earlier this year my my mother died and we decided to sell the house. as part of the sale we had a solicitor serve notice on the lease as it was part of the condition that a 1 months notice period could be given to end the lease. 
My question is do we (me and my two siblings) have to pay CGT on the difference in price between the value of the house in 2001 and the price that it was sold for in 2025 , or is any relief available to us as we rented the property to our mother rent free and did not live in the property ourselves at any point during this period.
Many Thanks
J

What I find very unusual about this arrangement is your statement the house was gifted by your mother subject to a 30 year leaseback at zero rent.

If this arrangement was formally documented including the lease being notified to the land register (as you indicated occurred) , this may have a potentially disadvantageous effect on the base value of the property for CGT purposes at date of gift.

What I am saying  is the value of a property burdened with an enforceable 30 year lease at no rent will not be its market value at that time but a much lesser amount on the basis that an arms length purchaser would not get  vacant possession or a market rent.  This is just one complication from a CGT point of view.

What are the terms of the 30 year lease? If the lease did not automatically terminate on the mother's death but continued until relevant notice was given to terminate , is there a value to be attributed to the rump of the lease, which presumably remains a separate and distinct asset of the estate until it is extinguished. It certainly cannot be ignored as if it does not exist.

I would suggest, that the existence of this lease has introduced complex  land law, IHT, CGT and valuation issues way beyond the knowledge and experience of this forum to offer informed views.

Could it follow from this that if the lease isn't terminated, then the current market value of the property is reduced, possibly significantly?
Senor Naranja, is there any possibility that you or a sibling may want to live there?
For this, the house - complete with lease - is valued accordingly and placed on the open market. 
The house is bought by one sibling, CGT is presumably reduced, and the three siblings sort out the resulting finances between them?
Or is that as silly as most things I say on this forum? (Preemptive... :-) )

Keep_pedalling

WIAWSNB said:

poseidon1 said:

senor_naranja said:

Good Afternoon and thanks in advance for any advice.
In 2001 my father died and the house that my mother and father owned outright was gifted to myself and my two siblings. 

Earlier this year my my mother died and we decided to sell the house. as part of the sale we had a solicitor serve notice on the lease as it was part of the condition that a 1 months notice period could be given to end the lease. 
My question is do we (me and my two siblings) have to pay CGT on the difference in price between the value of the house in 2001 and the price that it was sold for in 2025 , or is any relief available to us as we rented the property to our mother rent free and did not live in the property ourselves at any point during this period.
Many Thanks
J

What I find very unusual about this arrangement is your statement the house was gifted by your mother subject to a 30 year leaseback at zero rent.

If this arrangement was formally documented including the lease being notified to the land register (as you indicated occurred) , this may have a potentially disadvantageous effect on the base value of the property for CGT purposes at date of gift.

What I am saying  is the value of a property burdened with an enforceable 30 year lease at no rent will not be its market value at that time but a much lesser amount on the basis that an arms length purchaser would not get  vacant possession or a market rent.  This is just one complication from a CGT point of view.

What are the terms of the 30 year lease? If the lease did not automatically terminate on the mother's death but continued until relevant notice was given to terminate , is there a value to be attributed to the rump of the lease, which presumably remains a separate and distinct asset of the estate until it is extinguished. It certainly cannot be ignored as if it does not exist.

I would suggest, that the existence of this lease has introduced complex  land law, IHT, CGT and valuation issues way beyond the knowledge and experience of this forum to offer informed views.

Could it follow from this that if the lease isn't terminated, then the current market value of the property is reduced, possibly significantly?
Senor Naranja, is there any possibility that you or a sibling may want to live there?
For this, the house - complete with lease - is valued accordingly and placed on the open market. 
The house is bought by one sibling, CGT is presumably reduced, and the three siblings sort out the resulting finances between them?
Or is that as silly as most things I say on this forum? (Preemptive... :-) )

Although presumably the OP and their siblings are now also inherited the freehold, so goodness knows that affects CGT. I would have thought as mother was both the beneficial owner of both the freehold and leasehold the full value of the house falls under the IHT rules, but professional advice needs to be taken ASAP.

mybestattempt

poseidon1 said:

senor_naranja said:

Good Afternoon and thanks in advance for any advice.
In 2001 my father died and the house that my mother and father owned outright was gifted to myself and my two siblings. The Land Registry recorded that fact that the 3 of us held the freehold and my mother held a 0 cost leasehold for a period of 30 years.

Earlier this year my my mother died and we decided to sell the house. as part of the sale we had a solicitor serve notice on the lease as it was part of the condition that a 1 months notice period could be given to end the lease. 
My question is do we (me and my two siblings) have to pay CGT on the difference in price between the value of the house in 2001 and the price that it was sold for in 2025 , or is any relief available to us as we rented the property to our mother rent free and did not live in the property ourselves at any point during this period.
Many Thanks
J

What I find very unusual about this arrangement is your statement the house was gifted by your mother subject to a 30 year leaseback at zero rent.

If this arrangement was formally documented including the lease being notified to the land register (as you indicated occurred) , this may have a potentially disadvantageous effect on the base value of the property for CGT purposes at date of gift.

What I am saying  is the value of a property burdened with an enforceable 30 year lease at no rent will not be its market value at that time but a much lesser amount on the basis that an arms length purchaser would not get  vacant possession or a market rent.  This is just one complication from a CGT point of view.

Turning to the IHT reporting. On one view of this arrangement this would seem to be a straight forward gift with reservation of benefit, leading to the entire market value of the property at date of death falling with the mother's estate. However is that correct?

What are the terms of the 30 year lease? If the lease did not automatically terminate on the mother's death but continued until relevant notice was given to terminate , is there a value to be attributed to the rump of the lease, which presumably remains a separate and distinct asset of the estate until it is extinguished. It certainly cannot be ignored as if it does not exsist.

I would suggest, that the exsistence of this lease has introduced complex  land law, IHT, CGT and valuation issues way beyond the knowledge and experience of this forum to offer informed views.

I have to ask whether the solicitor handling the property sale is also dealing with the estate IHT reporting aspects on your behalf.  If so, have they raised with you any of  complications highlighted above? The question you have raised here does make me wonder the extent of professional advice you may have received so far, 

@poseidon1

You have raised very valid points about the short (less than 50 years) lease and thus the values of the property and lease for CGT and IHT purposes.

My initial response assumed the acquisition value to be the lease burdened market value so it is important that the OP is aware that the freehold property already burdened by such a formal lease would not have the same market value of the same freehold property with vacant possession.

However, I am now pondering if the grant of the lease might be deemed to have taken place after the gift of the freehold property and may be a further complication.

Just my thoughts, but it's perhaps another point the OP might want to seek professional advice upon.