Tax Implications for keeping the money from a gifted home?

BromsgroveGirl

My elderly father transferred, on the Title Deeds, ownership of his home to his 3 children 5 years ago & continued to live in the property.  He is still alive & the home is now being sold.  He never paid rent to them.  Each child already owns their own home.  What tax implications are there for the 3 children & can they keep the money received from the sale?

Mark_d

Inheritance tax will likely be payable when your father passes away

poseidon1

BromsgroveGirl said:

My elderly father transferred, on the Title Deeds, ownership of his home to his 3 children 5 years ago & continued to live in the property.  He is still alive & the home is now being sold.  He never paid rent to them.  Each child already owns their own home.  What tax implications are there for the 3 children & can they keep the money received from the sale?

What is going to happen to the sale proceeds and where will the father live after sale.

The children will each have a CGT liability on their individual share of the sale proceeds being the difference between its value 5 years ago and its current value.

However if they decide to contribute to a replacement house for their father to live in from the proceeds,  that will be considered the father's personal asset for future IHT purposes on his eventual death (consequences of GROB IHT legislation).

The father was very poorly advised to make the gift in the 1st place. It achieved nothing other than a personal CGT liabilty on the children.

pinkshoes

BromsgroveGirl said:

My elderly father transferred, on the Title Deeds, ownership of his home to his 3 children 5 years ago & continued to live in the property.  He is still alive & the home is now being sold.  He never paid rent to them.  Each child already owns their own home.  What tax implications are there for the 3 children & can they keep the money received from the sale?

Where is he going to live now and how is it being funded?

As each child already owns a home they are selling a second property so there will be tax implications on the increase in value since they purchased it.

Albermarle

As we see in many other threads, gifting your home is nearly always a bad idea, despite its seeming popularity.

SDLT_Geek

BromsgroveGirl said:

My elderly father transferred, on the Title Deeds, ownership of his home to his 3 children 5 years ago & continued to live in the property.  He is still alive & the home is now being sold.  He never paid rent to them.  Each child already owns their own home.  What tax implications are there for the 3 children & can they keep the money received from the sale?

If the property has gone up in value over the last five years, the three children might have capital gains tax to pay.

BromsgroveGirl

Many, many thanks & yes it is a complete nightmare.  We are all hopefully banking our third of the money & keeping it for when father needs more care & we have to pay for that - it seems a long way round to have done this though!
So if he bought the property for £415k & sells for £450k it gives a CGT liability of £35k at possible rate of 18% perhaps?  We each have £150k cash from the sale but have to pay a third of the CGT of £35k - would that be correct please?
I'm the lucky child who has volunteered to have father live with them in a 'pod' in the garden.

Brie

It doesn't matter what he paid for the property.  What matters is what was the value when it was transferred to you and your siblings.  It may be more than £415k so the CGT may be less than £35k.  

Just a warning but if your father does need care potentially provided by the local authority they will be including the value of the property in their calculations of his assets so you will all be liable for costs no matter whether you are willing or not.  I know you say you are all willing but feeling may change in 5 or 10 years time when the money has been used up to pay for whatever each of you spend it on.  There doesn't seem to be any time limit on deprivation of assets.  

Keep_pedalling

Unfortunately this has turned a very simple financial situation into a pointlessly complicated one. Too late for you but hopefully others will take heed.

kipsterno1

In this scenario were the three children already own a home and father hasn't paid rent would it incur any additional council tax charges? Asking out of curiosity.

Chief_of_Staffy

I asked Claude, out of interest. Its last paragraph is probably the best advice (Claude's own bolding):

Strong recommendation: This situation requires professional advice from a tax adviser or accountant who can review the specific circumstances, original transfer documents, and current tax rules. The interactions between CGT, income tax, and IHT rules in this scenario are complex and fact-specific.

The answer itself:

This is a complex tax situation that involves several potential implications for the three children. Here's what they should be aware of:

Capital Gains Tax (CGT) implications:

• When the father transferred ownership 5 years ago, this was likely a disposal for CGT purposes, even if no money changed hands
• The children's "base cost" for CGT would typically be the property's market value at the time of transfer 5 years ago
• Since none of the children lived in the property as their main residence, they won't qualify for Principal Private Residence relief
• When sold, each child will need to calculate their share of any capital gain (sale price minus their portion of the 5-year-old valuation, minus allowable costs)
• Each child can use their annual CGT exemption (£6,000 for 2023-24), but any gain above this will be taxable

Income Tax considerations:

• The fact that the father lived rent-free could potentially create a "benefit in kind" situation, though this is complex and depends on the specific arrangements
• If the children are deemed to have received rental income (the notional rent), this could be taxable

Inheritance Tax (IHT) planning:

• The original transfer may have been a "gift with reservation of benefit" since the father continued living there rent-free
• This could mean the property remains in his estate for IHT purposes despite the legal transfer
• However, if he survives 7 years from the transfer date, this becomes less of an issue

Other considerations:

• Yes, the children can generally keep the proceeds from the sale, subject to paying any applicable taxes
• They should consider whether the father needs care funding, as local authorities can sometimes challenge such arrangements