Capital Gains Tax....will i need to pay it?

Catral9

Hi folks , hopefully someone can give advice here.
My dad died over a year ago and left his house which he built around 50 years ago in 'liferent ' to my Step-mum ( his wife), she gets to live in it as long as she wants,  and only once she has passed away the house was to go to myself and my brother.
Both my brother and myself are in our early 60's with me particularly having health problems and our step-mum , who we just called by her name will most likely live another 15 years, till she's mid-90's, both her parents did.
Now our step-mum has offered to buy my brother's and myselfs share of the house off of us.
The house was valued and we've been offered 50% of the property value, which was my dad's share , split between us, which we are happy with, as it means we are gauranteed to get something now.
Does anyone know if my brother and i will have to pay Capital Gains Tax on the money we recieve for our half share of the property ?
We're in Scotland but i think the laws/rules regarding it are much the same as elsewhere in the UK.
Thank you.

eskbanker

Catral9 said:

The house was valued...

Was the house valued twice, i.e. once when you inherited a share and again now for disposal purposes?

Catral9

No , it was valued around 6 months ago , so it's only been valued once , it was the Solicitors who are dealing with the Will/estate who got it valued.

eskbanker

If you're disposing of an asset for the same price at which you acquired it then there's no gain, and therefore no CGT, although that assumes that HMRC don't challenge the use of the same value for both transactions....

Grumpy_chap

Catral9 said:

Hi folks , hopefully someone can give advice here.
My dad died over a year ago and left his house which he built around 50 years ago in 'liferent ' to my Step-mum ( his wife), she gets to live in it as long as she wants,  and only once she has passed away the house was to go to myself and my brother.
Both my brother and myself are in our early 60's with me particularly having health problems and our step-mum , who we just called by her name will most likely live another 15 years, till she's mid-90's, both her parents did.
Now our step-mum has offered to buy my brother's and myselfs share of the house off of us.
The house was valued and we've been offered 50% of the property value, which was my dad's share , split between us, which we are happy with, as it means we are gauranteed to get something now.
Does anyone know if my brother and i will have to pay Capital Gains Tax on the money we recieve for our half share of the property ?
We're in Scotland but i think the laws/rules regarding it are much the same as elsewhere in the UK.
Thank you.

Have you had any advice as to whether the 50% of current market value is a fair NPV determination versus the full value of the property in 15 years' time?

When you say you are suffering health problems, are these the normal type of growing older issues or something more significant that suggests you are likely to pre-decease the Step-Mum?

poseidon1

Catral9 said:

Hi folks , hopefully someone can give advice here.
My dad died over a year ago and left his house which he built around 50 years ago in 'liferent ' to my Step-mum ( his wife), she gets to live in it as long as she wants,  and only once she has passed away the house was to go to myself and my brother.
Both my brother and myself are in our early 60's with me particularly having health problems and our step-mum , who we just called by her name will most likely live another 15 years, till she's mid-90's, both her parents did.
Now our step-mum has offered to buy my brother's and myselfs share of the house off of us.
The house was valued and we've been offered 50% of the property value, which was my dad's share , split between us, which we are happy with, as it means we are gauranteed to get something now.
Does anyone know if my brother and i will have to pay Capital Gains Tax on the money we recieve for our half share of the property ?
We're in Scotland but i think the laws/rules regarding it are much the same as elsewhere in the UK.
Thank you.

The English equivalent of a Scottish life rent trust is called a life interest trust with the beneficiaries on death of the Life interest beneficiary called remaindermen.

In England, where a life interest beneficiary ( life tenant)  buys out  the remainderman's  ( fiars) interest in the trust property there is no  direct CGT charge on the remaindermen  - guidance below refers

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg37630#:~:text=See all updates-,CG37630 - Absolute entitlement: purchase by one beneficiary of other interest,the settled property, see CG37640.

You will note that technically speaking a CGT charge could accrue to the trustees ( who in reality would pass this on to the remaindermen) , but in your case any calculated gain would be exempt via the main residence exemption flowing through the liferenter's occupation of the trust property.

However this transaction requires careful drafting by the lawyer concerned since this is not a sale of a property interest from you to the liferenter. The liferenter is actually purchasing your 'reversionary interest' in the trust which in the present instance you happen to have valued as 50% of the property's market value.

The disposal/ acquisition of reversionary interests in a trust is a specialist matter requiring appropriate competency. This suggests the need for a STEP (Society of Trust and Estate Practitioners) qualified lawyer. Hopefully the lawyer in this case is duly qualified.

Finally, this transaction will terminate a trust that should already have been registered on HMRC's Trust Register. If this never occured in the first place, the lawyer should deal with this outstanding HMRC compliance as part of the trust winding up.

Catral9

Grumpy_chap said:

Catral9 said:

Hi folks , hopefully someone can give advice here.
My dad died over a year ago and left his house which he built around 50 years ago in 'liferent ' to my Step-mum ( his wife), she gets to live in it as long as she wants,  and only once she has passed away the house was to go to myself and my brother.
Both my brother and myself are in our early 60's with me particularly having health problems and our step-mum , who we just called by her name will most likely live another 15 years, till she's mid-90's, both her parents did.
Now our step-mum has offered to buy my brother's and myselfs share of the house off of us.
The house was valued and we've been offered 50% of the property value, which was my dad's share , split between us, which we are happy with, as it means we are gauranteed to get something now.
Does anyone know if my brother and i will have to pay Capital Gains Tax on the money we recieve for our half share of the property ?
We're in Scotland but i think the laws/rules regarding it are much the same as elsewhere in the UK.
Thank you.

Have you had any advice as to whether the 50% of current market value is a fair NPV determination versus the full value of the property in 15 years' time?

When you say you are suffering health problems, are these the normal type of growing older issues or something more significant that suggests you are likely to pre-decease the Step-Mum?

No we hav'nt but i suppose you have to go with the 'present' value as the offer to buy us it is present time.
As it happens we were offered £25k less ( between myself and my brother) than my dad's half share of the property but we rejected that offer and said if we are going to accept an offer to buy us out it would need to be at least equavalent to the value of my dads' half share , so our step-mum agreed to this.
Re' my own health , yes...if i was a betting man i'd say i'll be gone before my step-mum.....whom i must add we never seen her a a step-mum , just my dad's wife.

Keep_pedalling

She would not actually be buying it from you as it seems your father’s will created an immediate post death interest trust and it is the trust that has legal ownership of your father’s share and his wife is the beneficial owner. This complicates things somewhat but it does mean there will never be a capital gains tax issue even if it is sold in 10 or 15 years time.

I would strongly recommend you get professional help to deal with this to make sure the trust is wound up correctly, for this you will need a STEP solicitor who is qualified to deal with the trust element in this.