Capital Gains Tax

[Hereford Wolf]

My Mum is 94 and very frail. She still lives in her own home. Her house is worth aprox £400,000. When my Dad died (27 years ago), we put the house in joint names (my sister and I), with the thought of trying to avoid care home fees in the future.

My Mums Will just leaves everything to me and my sister, but when we inherit the property, would we have to pay Capital Gains Tax on it?

My sister lives round the corner and visits Mum everyday and does everything for her. I live further away but still visit regularly to help out when I can.

The Will cannot be changed! It would be too much for Mum.

Anybody with any tax knowledge got any thoughts on this? We do not want Dads hard earned money to buy the house to go into the tax office coffers!

Thanks a lot

 

[AndyWolves]

Given the kind of sums you're talking about my advice would to take some professional advice here given that the difference in outcome could be thousands.

 

[leedswolf]

You wouldn't pay capital gains for inherited property (inheritance tax kicks in at £500k for property). You may pay capital gains tax on any profit you make on the house when you dispose of it.

How Inheritance Tax works: thresholds, rules and allowances

Inheritance Tax (IHT) is paid when a person's estate is worth more than £325,000 when they die - exemptions, passing on property. Sometimes known as death duties.

www.gov.uk

 

[Del Woppio]

So you moved it 27 years ago to avoid paying for care, and now you're looking for a way to avoid paying CGT/inheritance tax? How very Tory.

CGT won't kick in until the house is sold, and will based on the profit between the sale price and what your dad bought it for, unless it's in a trust fund where it becomes exempt.

 

[Hereford Wolf]

So you moved it 27 years ago to avoid paying for care, and now you're looking for a way to avoid paying CGT/inheritance tax? How very Tory.

CGT won't kick in until the house is sold, and will based on the profit between the sale price and what your dad bought it for, unless it's in a trust fund where it becomes exempt.

Being called a Tory is the biggest insult I have had on here since I joined this forum in 2011.
I am just looking for some financial advice to help to keep money in the family, so that my son and daughter can benefit from my Dads hard work rather than the tax man.
I’m sorry you don’t think that is a good idea.

 

[Paddingtonwolf]

You would be subject to IHT but are under the threshold.

 

[Paddingtonwolf]

When I sold my parents house as part of an estate there was no CGT liability

 

[Hereford Wolf]

You would be subject to IHT but are under the threshold.

Yes, I’m not worried about IHT, it’s Capital Gains that is the worry when we sell the property that was transferred to us by my Mum many years ago.

 

[Hereford Wolf]

When I sold my parents house as part of an estate there was no CGT liability

Was the house in your name or your parents?

 

[Johnny75]

Tax when you sell property

Capital Gains Tax when you sell a property that's not your home: work out your gain and pay your tax on buy-to-let, business, agricultural and inherited properties

www.gov.uk

 

[EpsomWolf]

Being called a Tory is the biggest insult I have had on here since I joined this forum in 2011.
I am just looking for some financial advice to help to keep money in the family, so that my son and daughter can benefit from my Dads hard work rather than the tax man.
I’m sorry you don’t think that is a good idea.

Anyone with any common sense will make financial plans that work in their best interests. Staying within the framework of the law means you’ll be paying significant tax anyway, it’s foolish to pay more than you have to.

If anyone wants to hand over any spare money unnecessarily to the taxman under the illusion it’s for the ‘greater good’, I’d suggest you rethink things pretty quickly and just hand it straight over directly to a worthy charity of your choice instead.

As far as CGT goes, it can appear quite frightening. I would avoid using online CGT calculators and absolutely recommend getting specialist advice. It’s surprising how your initial CGT calculation dwindles once an accountant (or FA) has factored in your annual allowances plus any costs which can be potentially offset (which can be substantial) and suddenly the overall CGT, which is essentially only a relatively small % of tax on what is unearned profit over (in your case) a good length of time, and suddenly the CGT seems fair and reasonable.

So definitely get some advice and don’t let anyone get to you regarding your choices. Good luck, hope it works out ok.

 

[Paddingtonwolf]

Was the house in your name or your parents?

My parents name and I was executor of the will.

 

[nimrod]

Should do what Andy says and take some advice on it. I’d think a future sale would trigger a CGT calc. Then there’d be an issue of ‘base price’. I think there’d be the value at transfer and (when I did my tax exams) you used to escalate it (rpi whatever) but that got removed. So might be a rule that the value at the date of law change becomes the relevant base price. So you’ll want to clarify that with someone.

It may also be complicated by how you dealt with continuing use by your mother as the property is less value to you while she occupies. might be advantageous as the ‘uplift’ in value when you get full use might fall under IHT which could fall under the threshold and simultaneously increase the base value for CGT purposes. that feels logical to me, so based on tax law it is probably bullshit. But worth exploring the value in her right to use until she passes.

 

[Hereford Wolf]

Thanks to everybody for their advice and comments. It’s really complicated isn’t it?

I will definitely seek some professional advice on this - it seems like a bit of a minefield.

Cheers

 

[EpsomWolf]

No doubt first and foremost is the need to establish whether or not there will be CGT to be paid at point of sale. You’d then (with advice) be able to calculate fairly accurately the amount due (based on an assumed selling price).

Finding that out in advance and assuming the amount required was substantial, it would give you time for some creative thinking. There might be options surrounding transferring ownership to one of you solely (the lower tax payer) with the other keeping a financial charge on the property to be paid at point of sale. I’m assuming there is no lender involved which gives you an advantage with much more scope to tweak things in your favour.

Worth pointing out no lender will provide a mortgage on a property that has has a transfer of ownership within 6 months - meaning you wouldn’t be able to find a buyer (even a cash buyer would be advised against by their solicitor) for at least 6 months after transfer - this is because assets are often transferred to third parties (normally spouses) in anticipation of bankruptcy - in this case the government would retrospectively claim the property and the new ‘buyer’ potentially lose everything. Transferring owners often let the property for a period to avoid this, although the owner moving in very briefly first allows for a much faster (and cheaper) Section 8 Ground 1 recovery of the property than than the drawn out Section 21 you’d need to use if never lived there at all.

It will be much easier to find someone to give you the answers to the first two parts (^^^^) than someone to give you both the necessary investment and tax advice on alternative options but one will dictate the other.

Hopefully it will be relatively simple with no CGT triggered. Even if you have to pay you need to think about what you’ve gained and not what you’ve lost, at least an accountant will ensure it’s fair. The alternatives are where the ball ache starts and you have to think about the hassle involved, your own age(s) and your end game. Only you can decide those.

Good luck!

 

[Wolf Hunting]

Hereford, here's a simple answer from Mrs Hunting.
He says the house is in his own and his sister’s names so they already own the property. Their mum dying will therefore have no tax effect UNLESS they sell it. If they do, capital gains tax will apply.

 

[Johnny75]

Hereford, here's a simple answer from Mrs Hunting.
He says the house is in his own and his sister’s names so they already own the property. Their mum dying will therefore have no tax effect UNLESS they sell it. If they do, capital gains tax will apply.

Moral of that story is take professional advice

 

[Paddingtonwolf]

Depends when they transferred it for a start as taper relief on IHT may or may not apply. And that’s just for starters.

 

[EpsomWolf]

Not sure where to put this but it’s been touched on in here briefly so here goes. Massive news on rental reforms with the removal of Section 21 which will have an affect on every one of us, landlord, tenant or homeowner.

No-fault evictions to be banned in reform of rental sector

The government is introducing a new law designed to overhaul the rental sector in England.

www.bbc.co.uk

No doubt Section 21 has been used and abused by landlords and needed reform but Michael Gove has just made Liz Truss look competent. Other changes in the pipeline for 2025 had already seen many landlords prepare to abandon the sector before then and the removal of S21 will finish any doubters off.

Not difficult to see what the good intentions are and landlords are not going to get much sympathy, but rental properties will be dumped on the open market en masse and the consequences of that are anyone’s guess.

About as well thought through as Brexit this one. Interesting times ahead.

 

[lemonjelly]

wonder if it is likely to result in an influx of properties onto the market?