transfer of home from parent Capital Gains Tax Liability

[p.trivedy@btinternet]

Our family home has been the only residence for my mother, myself and my wife. it is in my mothers name and she wishes to tranfer it to me and my wife and we will all continue living there. I am aware that there will be an inheritance tax liablity with a 7 year rule.
In addition, i am using the address as my registered business address for postal purposes only and the trading address is different.
Would i be liable to any cgt and are there any further issues with regard to the inheritance tax liability
thanks

[Nigel Lord]

If your mother transfers the property into the names of you and your wife this will be chargeable event for Capital Gains Tax (CGT)purposes. The transfer will be treated as being made at open market value as you are connected persons. However, assuming that it has always been your mother's only main residence, she will be entitled to 100% Principal Private Residence (PPR) Relief and therefore no CGT liability will arise. Similarly if it continues to be the main residence of you and your wife, you will qualify for PPR Relief on a future transfer/sale.

The transfer would, however, be ineffective for Inheritance Tax (IHT) purposes, as your mother would retain a benefit by living there (unless she paid a commercial rent on which you and your wife would be liable to income tax). This is because she would fall foul of the Gifts with Reservation Of Benefit (GROB) rules and the whole value of the property would remain within her estate irrespective of whether she survived for 7 years.

In addition from 5 April 2005 your mother would have a substantial income tax charge based on the rental value of (part) of the property due to the new 'pre-owned' asset rules.

You will therefore need to reconsider your planning proposal.

There would certainly be some scope to transfer part of the property to you, and your wife, or to take out a loan and to gift the money or to invest in an Inheritance Tax efficient product.

This is a complicated areas which is being increasingly closely scrutinised by the Inland Revenue and attacked through anti-avoidance legislation. You should take qualified advice prior to undertaking any action as imperfect planning could actually increase your family's tax burden.

Our firm specialises in this area of taxation. If you would like us to assist you further we would be delighted to do so.

Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852
mail@lordassociates.co.uk