Inheritence Tax or Capital Gains?

alimul

Hi guys, I'm hoping one of you gurus can advise me on something? My grandmother is getting on now and has agreed to transfer her property to myself and my brother. The property is worth around £250,000 - 270,000.

Now she resides with us now due to poor health. We have decided to let her property out.

What I am trying to ascertain is whether we would be liable for inheritance tax or if capital gains tax is involved?


Many thanks in advance

fengirl_2

You can only ever be liable to IHT once you are dead!
The value of the property will form part of your G'mother's estate unless she survives for 7 years after the gift.
You and your brother will be liable to CGT when you come to sell the property.

Murdina

In principle there is CGT when the property is given to you but so long as it qualified as your grandmother's principal private residence, that relief should cover the gain in full. If she has not always lived there, or it is more than 3 years since she moved out, then she may have to return a capital gain based on the market value of the house at the time of transfer.

When you come to sell, any gain you make will be based on the difference between what you sold it for and the market value at the time that your grandmother gave it to you both.

By the way, there are situations in which a lifetime charge to IHT arises e.g. if you give an asset to a trust and the value exceeds your nil rate band. Rare but it does happen.

silvercar

You will have a CGT liability based on the difference between its value when she transferred it to you and its value when you sell it, unless you live in it as your principal private residence.

If your grandmother passes on within 7 years of the transfer date it will be included in her estate, the value diminishes according to the length of time between the transfer and her passing.

Also note that when she makes the transfer, you and your brother are liable for stamp duty. Value it under 250k if you can as there is a hike in the stamp duty rate from 1% to 3% at this point.

alimul

Many thanks for all the replies.

The general consensus is that we would be liable for CGT but only if we decide to sell? Am I correct in assuming that if we do not sell, we would not be required to pay CGT?

What happens if we sell in say 5 - 10 - 15 years time, does CGT still apply then?


>>In principle there is CGT when the property is given to you but so long as it qualified as your grandmother's principal private residence, that relief should cover the gain in full.

Yes, she is still the legal resident there so there shouldn't really be any CGT should there?


>Also note that when she makes the transfer, you and your brother are liable for stamp duty. Value it under 250k if you can as there is a hike in the stamp duty rate from 1% to 3% at this point.

It this definitely the case even though it is being transferred within the family? The transfer papers where all filled in last year, all that needs to be done is for me to instruct the solicitor to complete the transfer, there was no mention of product valuation?

Thanks in advance everyone.

A

whatatwit

Yes CGT will still apply whenever you decide to sell the property, as long as CGT is still around.
Remember that you will also be liable to income tax on the rental income.

I don't know if you or your brother are married, but if you were to gift half of your share to your spouse, then that could help to spread any future Capital Gain, also if your spouse doesn't use their Personal tax allowance, then it would reduce the tax liability on the rental income.

(these are just my thoughts)

alimul

>> Remember that you will also be liable to income tax on the rental income.

Is this a case of self assessment or will they come and ask me to pay?

> I don't know if you or your brother are married, but if you were to gift half of your share to your spouse, then that could help to spread any future Capital Gain, also if your spouse doesn't use their Personal tax allowance, then it would reduce the tax liability on the rental income.

He is married, but I don't think he will do this just yet.

Just one last thing beofre I go ahead with the transfer, I read somewhere that CGT will be reduced after April, is this the case and should I wait or just complete the transfer now?

Many thanks for your feedback

whatatwit

The rental income will come under self assessment, there have been a few threads as to what you can claim against the rental income.

CGT should not come into play as the property is not sold prior to 6th April.
If it was a rental property that you had owned for some time and you were debating about selling beofre or after 5th april, then you would be affected.

Just another thought, if your grandmother were to need funded care from Social Services/Local Authority in the future, then there may be questions asked about the disposal of the house. I realise that she is going to be living with you, but thought i would mention this point.....there are threads on this on one of the other boards.

silvercar

Also note that when she makes the transfer, you and your brother are liable for stamp duty. Value it under 250k if you can as there is a hike in the stamp duty rate from 1% to 3% at this point.

It this definitely the case even though it is being transferred within the family? The transfer papers where all filled in last year, all that needs to be done is for me to instruct the solicitor to complete the transfer, there was no mention of product valuation?

Yes, check with your solicitor.

Just one last thing beofre I go ahead with the transfer, I read somewhere that CGT will be reduced after April, is this the case and should I wait or just complete the transfer now?

CGT liability will only occur when you sell it.