CGT & Inheritance Tax

muddledmini · 17 January 2019 at 12:57PM

Hi,

Long-time lurker, first-time poster. I’m just after a bit of advice.

My mum is considering buying a flat (worth approx. £260,000), getting a small mortgage then after she has purchased it, immediately transferring the deeds into my name. (FYI, I will pay her the mortgage amount every month).

My mum will not ever live in it, I will be the sole occupant. From what I’ve read, this means that I won’t pay CGT if I (ever) sell it, as this property gift it will have been my main home.

However, I am unclear what the situation re: inheritance tax. I know that if she continues to live for 7 years after gifting me the property, then I will not have to pay inheritance tax.

However, if she passes before 7 years (I really hope not), then:

- will I have to pay inheritance tax, even if this has been my main residence?
- if I do have to pay IHT, then do I have to pay it immediately? I will be unable to get a large chunk of money without selling the property & effectively leaving me homeless!

NB: I know that currently, the value of the flat is under the £325,000 threshold, but the flat could potentially increase in value to over the threshold if (again, hopefully not!) my mum passes before 7 years.

We are not trying to avoid paying tax etc., we just want to be aware of all the possibilities. It might be the case that I delay getting a flat until I get a better job, save up more £££ (alongside a ‘gift’ chunk of money from my mum) and get the mortgage myself.

I’ve read lots of other threads, the .gov website and am still muddled. Any advice will be appreciated.

Thank you,

Mojisola · 17 January 2019 at 1:21PM

muddledmini wrote: »

My mum is considering buying a flat (worth approx. £260,000), getting a small mortgage then after she has purchased it, immediately transferring the deeds into my name. (FYI, I will pay her the mortgage amount every month).

What mortgage company will let her give away the asset that she has a mortgage on?

Tom99 · 17 January 2019 at 1:21PM

[FONT=Verdana, sans-serif]Why does your mother not just give you £230,000 or whatever and you buy the flat? If your mother buys it and gets a mortgage she will have to repay the mortgage before she gives it you and you then take out your own mortgage, plus a load of unnecessary fees?[/FONT]
[FONT=Verdana, sans-serif]The £230,000 would be a gift for IHT purposes. If your mother has not made any give in the previous tax year 2017/18 then 2 lots of £3,000 allowance can be taken off.[/FONT]
[FONT=Verdana, sans-serif]£224,000 will then be deducted from you mother's nil rate band if she dies within 7 yrs of the gift.[/FONT]
[FONT=Verdana, sans-serif]Whether she gifts you a property or money the gift amount is fixed at the time of the gift.[/FONT]
[FONT=Verdana, sans-serif]No IHT is paid on the gift now or in the future but the gift will reduce the IHT nil rate band your mother has for the next 7 yrs[/FONT]

Linton · 17 January 2019 at 1:25PM

Any inheritance tax arising from a gift is at least initially the responsibility of the estate to pay. However if after making the gift there is insufficient money in the estate HMRC could go after the recipients of the gift. If your mother has plenty of other assets/savings etc there should be no problem.

Your mother also needs to consider her possible care needs in later life. The value of the gift could be regarded as still part of her assets and so would limit the amount of assistance the council would pay for, which would put you in a difficult position. Again if she is retaining significant wealth this should not be a problem.

I do not believe that putting the flat in your name whilst she is the mortgage payer would be acceptible to the mortgage provider.

Keep_pedalling · 17 January 2019 at 1:26PM

Not enough information to give an answer. What other assets does your mother own? Is she a widow? If she is a widow did her husband leave everything to her?

Why does she simply not give you the money so you can buy your own place? If she already owns a property she will be hit with £8,400 in additional stamp duty.

xylophone · 17 January 2019 at 1:29PM

Why doesn't your mother lend you enough money to buy a property of your own against a first charge on the property?

Your solicitor would draw up the loan agreement.

muddledmini · 17 January 2019 at 1:50PM

Thank you all for your replies.

In my ignorance, I had not realised that it is unlikely that the mortgage company would accept the transfer of deeds into my name, whilst my mum is named on the mortgage.

@xylophone - if we draw up a 'loan' agreement, could it be something like, "X agrees to pay Y back at the rate of £1 a year." and then, becuase it's not a gift, no IHT needs to be paid? Is that allowed?

It seems that it would be wise to me to buy the property myself, provided that I can get a mortgage.

But to clarify, if she does 'gift' me the £230,000 amount, this will be liable for IHT in the sense that for the next 7 years, her nil rate band will be reduced by £230,000 - is that correct?

Apologies if your response @Tom99 has already answered this, I am very muddled and would appreciate the extra clarification.

Tom99 · 17 January 2019 at 1:51PM

Linton wrote: »

Any inheritance tax arising from a gift is at least initially the responsibility of the estate to pay. However if after making the gift there is insufficient money in the estate HMRC could go after the recipients of the gift. If your mother has plenty of other assets/savings etc there should be no problem.

IHT on a gift would only apply if the gifts exceeded £325k plus any inherited nil rate band.

muddledmini · 17 January 2019 at 1:53PM

@ Tom99, I don't think there is any inherited nil rate band, as my mum is divorced & single.

Linton · 17 January 2019 at 2:04PM

muddledmini wrote: »

Thank you all for your replies.

In my ignorance, I had not realised that it is unlikely that the mortgage company would accept the transfer of deeds into my name, whilst my mum is named on the mortgage.

@xylophone - if we draw up a 'loan' agreement, could it be something like, "X agrees to pay Y back at the rate of £1 a year." and then, becuase it's not a gift, no IHT needs to be paid? Is that allowed?

If it was a a loan the flat would be part of her estate and so subject to IHT anyway.

It seems that it would be wise to me to buy the property myself, provided that I can get a mortgage.

Yes

But to clarify, if she does 'gift' me the £230,000 amount, this will be liable for IHT in the sense that for the next 7 years, her nil rate band will be reduced by £230,000 - is that correct?

No, the NRB remains the same, the value of her estate for tax purposes is increased by the value of the gift. Much the same effect though.

Tom99 · 17 January 2019 at 2:13PM

muddledmini wrote: »

@ Tom99, I don't think there is any inherited nil rate band, as my mum is divorced & single.

Then the gift will reduce the available NRB £325k less say £230k = £95k. So if her estate is over £95k in the next 7yrs that amount would be subject to IHT, but if you mother leaves you her home she will have an extra £175k residential nil rate band by 4/2020

CGT & Inheritance Tax

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