Capital Gains

Sammy17

My parents are selling their property. they are going to use some of the capital to build an annexe on my property. Would I be liable to capital gains tax or the likes if they pass away?

Keep_pedalling

Will they be securing their investment in your home with a charge on your property or taking a share of ownership?

Even if they don’t do this it is IHT that is likely to be the tax that they / you need to consider.

mta999

If they are just giving you the money so that you can build the Annex then no tax is payable - other than the gift will count towards their estate if they die within seven years I assume they do.not plan to live in this annex)

sheramber

https://forums.moneysavingexpert.com/discussion/comment/82079896#Comment_82079896

Sonce the parents are selling their home and paying for an annexe on the OP’property I would assume they do intend to live in it.

Who will own the annexe

Will it be a separate dwelling with its
own council tax?

If not, what iare the arrangements going to be.

Sammy17

my parents will be living in the annexe which will be part of my property. They will have no legal charge over it, my mother has parkinsons so will be needing assisted living. To add they will be using £150k from the sale of their house to build the annexe

user1977

Not sure what you think might become a chargeable capital gain? Assuming your property is (and always will be) your main residence then it's exempt from CGT. If your parents gift you money to improve it, that's still your tax-free gain.

(whether the arrangement is wise from your parents' point of view is of course a different question)

Sammy17

https://forums.moneysavingexpert.com/discussion/comment/82079938#Comment_82079938

they will be gifting the money. Is it tax free as under the £325k?

user1977

There's no tax on gifts. As above, it is though potentially taken into account for Inheritance Tax if they die within 7 years.

sherlock228

https://forums.moneysavingexpert.com/discussion/comment/82079950#Comment_82079950

there is no immediate tax on the money given to you

however, because it is funding a property you own that they will then live in, that makes it a "gift with reservation" (of benefit) aka "GWR" for IHT purposes and so the amount will remain within their estate until they die as it does not fall within the 7 year rule (unless they move elsewhere at which point the 7 year clock would start ticking)

In essence you have received your inheritance early but becuase they still benefit from their money it remains taxable against them, not a tax free early inheritance for you.

technically the GWR would be the lower of £325 or the cost to build the annex, so if they give 325 and there is money left over, that excess falls within the 7 year rule., so make sure you keep the build cost paperwork!

mta999

my parents will be living in the annexe which will be part of my property...

exactly why I asked - because your parents are living there it will never fall outside their estate for IHT so the seven year rule will not apply

Other than that there are no taxes to pay

Keep_pedalling

This would be a gift with reservation of benefit, so it would not fall out of their estate after 7 years.