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Where Taxpayers and Advisers Meet

inheritance tax brain freeze!

pcplum
Posts:8
Joined:Sun Feb 05, 2017 7:33 pm
inheritance tax brain freeze!

Postby pcplum » Sun Feb 05, 2017 8:01 pm

Hi,

For the last few months i have been trying to figure out my tax on my scenario and the conflicting information is insane!

Basically, i live with my mum in the family home. I am married with kids. The house was my fathers who passed away over ten years ago. My mum was not on the title but after his death, the house title is now solely in her name.

We live in london and in the last few years, the house has rocketed to about 650k. Now we are not a wealthy family and she has no cash, just 'asset rich' i guess. We certainly dont wish to sell the house as its our family home.

I have been looking at getting my name on the title so we are half half with my mum. However some places state i will have to pay capital gains tax? Also i cant seem to get confirmation if my fathers tax that he can pass on is still valid?

If it is, does that mean i get the 350k from my mum and dad? Or have i lost that entitlement.

Any help would be greatly appreciated as suddenly we are 'asset rich' but dont have any cash so wont be able to pay the 40percent tax without selling up! We dont want to sell our home!

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: inheritance tax brain freeze!

Postby pawncob » Sun Feb 05, 2017 9:48 pm

If your father's estate wasn't taxable, and he left the house to your mother, then she'll have his lifetime exemption as well as hers, so £650k available. She can either gift half to you or leave it to you in her will. either way, no IHT is payable.
With a pinch of salt take what I say, but don't exceed your RDA

pcplum
Posts:8
Joined:Sun Feb 05, 2017 7:33 pm

Re: inheritance tax brain freeze!

Postby pcplum » Sun Feb 05, 2017 10:14 pm

If your father's estate wasn't taxable, and he left the house to your mother, then she'll have his lifetime exemption as well as hers, so £650k available. She can either gift half to you or leave it to you in her will. either way, no IHT is payable.
Oh if thats the case, that is wonderful!

Thank you so much for your reply. I had some say my fathers side wont count as he was sole owner plus its over ten years ago etc.

Also some saying if my mother gifts me the half, i will pay CGT on it.

If thats not the case then it saves us a lot of grief! Just will be a problem if the house rises higher than 650k!

pcplum
Posts:8
Joined:Sun Feb 05, 2017 7:33 pm

Re: inheritance tax brain freeze!

Postby pcplum » Sun Feb 05, 2017 11:28 pm

Also, just another question.

If my mum does sign over half the house to me, do i have to go via a solicitor? Or can we arrange this ourselves? I have looked on the government website and it appears it is a form. 'transfer part ownership'.

In their it asks for the value of transfer. The value of what i will pay my mum will be nothing. So do i put in zero or should we have some sort of price? The fees on a zero transaction are £40. Does this all sound about right?

Or should i use a solicitor? Someone quoted me just over £1200! Thats money i do not have!

Thanks again

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: inheritance tax brain freeze!

Postby AGoodman » Mon Feb 06, 2017 12:41 pm

There is probably little point in the gift and it could theoretically make things worse.

You mother will have a nil rate band of £325k and, if she leaves the house to you, a residential nil rate band (RNRB) of £100-175k (the former from April this year, the latter assuming she survives past April 2020).
She also receives a transfer of your father's NRB of £325k and RNRB of £100k, a grand total of £925k tax free.

With that in mind, there is no need to make any transfers. Bear in mind that if she continues to live there, the half share will remain part of her taxable estate anyway under the gift with reservation rules.

If she does make a gift, you should ensure that she retains £275k of the home to pass to you to ensure she benefits from the full RNRB.

There is no CGT on a gift as your mother benefits from 100% principal private residence relief. You should also benefit from that if you later come to sell the half share. The slight quirk is that if you mother retains the entire house until death, it will benefit from a capital gains tax uplift to market value. This is unlikely to make a difference in practice.

I'm no conveyancer but if you do want to proceed with a gift, there are two ways to arrange it. She could execute a simple declaration of trust under which she declares herself a trustee of the property as to one half for her and one half for you. This is not registered. Alternatively, she could make a formal transfer of the registered title to her and you as tenants in common.

I would recommend using a solicitor but you should be able to arrange it for far less than £1,200 - most high street firms would buy or sell the property for less. The transfer form is a TR1 as she is transferring the entire property into your joint names (as tenants in common). The TP1 for a part transfer is only used if you are physically dividing the property - eg transferring the garden.

Andrew Goodman

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: inheritance tax brain freeze!

Postby AGoodman » Mon Feb 06, 2017 12:50 pm

Addendum:

A gifted half share might leave your mother's estate after 7 years provided she continues to pay a half share of all the household expenses.

pcplum
Posts:8
Joined:Sun Feb 05, 2017 7:33 pm

Re: inheritance tax brain freeze!

Postby pcplum » Mon Feb 06, 2017 3:42 pm

Hi Andrew,

Thanks so much for that. Lots of info for me to consider and i really appreciate the depth.

In your opinion, what would you do? Leave it as it is or transfer half over?

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: inheritance tax brain freeze!

Postby AGoodman » Mon Feb 06, 2017 7:16 pm

I can't really see any benefit to doing it.

The only advantage might be if property values shoot up a lot faster than the nil rate bands, which is possible over 10-20 years.

If the property value (with other assets) were to exceed £925k and the Govt had not increased the bands, it would have been a help. You would have to ensure that you mother was covering her half of all the costs though to make sure the donated half did not stay in her estate regardless.

The only other issue is care home costs but this is unlikely to offer much in the way of protection. I know little about it but I believe unless you (as her child) are over 60, the LA are likely to treat at least her remaining half as her capital, and quite possibly the half given away as well under the "deprivation of capital rules". I should stress again that I am no expert in that area.

AG

pcplum
Posts:8
Joined:Sun Feb 05, 2017 7:33 pm

Re: inheritance tax brain freeze!

Postby pcplum » Wed Feb 08, 2017 1:07 am

Hi Andrew,

I cant stress how great you have been. Thank you so much for taking your time out for the thorough advice.

I now feel so much more comfortable with the situation. Makes sense and gives me a clear idiea. I will most likely sick with how things are and as you said, if prices do soar again, i will have to look in to it again. But i cant see them going too much higher than what it is at, at least i hope not!

This does really highlight how poorly made the IHT system is.

pcplum
Posts:8
Joined:Sun Feb 05, 2017 7:33 pm

Re: inheritance tax brain freeze!

Postby pcplum » Tue Feb 13, 2018 11:01 am

Sorry to bring this up again but looking and reading online this looks more and more complex.

My father passed away in 2005 so initially I was under the impression that the 325k of nil rate tax band goes to my mum.

But reading in other places, only a percentage of unused amount gets passed on to my mother and my father has no additional 100k nil rate as he died before 2007?

So currently the house is worth still about 650k.

My mother gets 325k, plus 125k nil rate band. So that's 450k. My father when he passed away maybe only got a few more thousand to pass on to as the house then was worth about 250k. the nil rate band then was 263 so he can only pass on another 13k to my mum?

This leaves me in a bit of difficulty if this is the case. Any help?


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