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Where Taxpayers and Advisers Meet

House swap, but really a gift - CGT/IHT help ?

n.cass@hull.ac.uk
Posts:2
Joined:Wed Aug 06, 2008 3:04 pm

Postby n.cass@hull.ac.uk » Wed Jul 16, 2003 1:51 am

Hello.

Many apologies as I'm quite sure I'm posting a question that has already been asked countless times. But having tried to piece together an accurate answer for myself from other peoples answers i struggled somewhat.

My mum wants to swap houses with me in order to leave her large family house for a smaller more manageable one. However at the same time she wants to gift the house to me, whereby i let her live in my house rent free and i continue to pay the mortgage and maintain the house. Her main reason for wanting to do this is that should she ever require residential care she wouldn't want to have to sell the family home to pay for it.

I realise this is a PET and that inheritance tax would be payable were she to no longer be with us within seven years. However I don't understand the position with regard to CGT.

As it is my mums PPR is the transfer exempt from CGT?

Do i become liable for any CGT or otherwise?

Are there any other tax gotchas to be wary of with regard to mum living in my house but rent free?

Any advice woul be most welcome...

TYIA

Nigel Cass.

accountant@uktaxshop
Posts:550
Joined:Wed Aug 06, 2008 3:04 pm

Postby accountant@uktaxshop » Wed Jul 16, 2003 2:14 am

Nigel,

First piece of advice (and I appreciated this may sound biased), donÂ’t try and DIY this, do it properly with an experienced solicitor/accountant. It will save you from making an expensive mistake.

If you swap as proposed, there would be no immediate CGT (due to PPR's), although stamp duty may arise if you do it outside a trust.

Given your reason for the swap is to re-house your mother in a smaller property and reduce her assets, a straight gift to you of her main house (which you are then presumably going to go live in) could be another option.

However you would then be chargeable for CGT on your current house running from 3 years of moving out, so it might make more sense leaving some property in her estate if IHT isnt going to arise.

This is a complex area with many options, if you would like the number of somone who does this sort of planning on a daily basis, please let me know.

Regards

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436

n.cass@hull.ac.uk
Posts:2
Joined:Wed Aug 06, 2008 3:04 pm

Postby n.cass@hull.ac.uk » Wed Jul 16, 2003 8:40 am

Thanks James.

I do definitely intend to seek professional help if and when we do go ahead. But initially I'm just trying to understand the position.

So am I right in thinking that if My mother gifts her house to myself the only liability may be stamp duty ?

At this point I would then own two properties and presumably CGT would not arise until I were to sell the property that my mother would be living in but that i still owned ?

Sorry if I'm asking the obvious.

Nigel.

p.s, In terms of IHT I believe my mother will end up living in my current house for quite some time (quite probably well in advance of 7 years) and I imagine after that period the mortgage would be paid in full and i may well rent the property out for extra income anyway.

accountant@uktaxshop
Posts:550
Joined:Wed Aug 06, 2008 3:04 pm

Postby accountant@uktaxshop » Wed Jul 16, 2003 11:01 am

Nigel,

Re the gift, the only liability at the time of the transfer may be stamp duty, depending how it is structured.

And yes CGT will only arise on a disposal or further gift of the house you are not living in.

The reason it doesnÂ’t arise at the time of the gift is that you both presumably have full PPR relief, and so the transaction is exempt.

I hope this helps.

Regards

James Smith


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