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Where Taxpayers and Advisers Meet

Confusing property arrangement for my in-laws

Alex22
Posts:1
Joined:Tue Oct 17, 2017 2:04 pm
Confusing property arrangement for my in-laws

Postby Alex22 » Tue Oct 17, 2017 2:48 pm

Hi,

Trying to help my parents in law sort out their assets and actually write some wills, and they've ended up in a slightly confusing situation that I can't work out what/if there are any IHT, CG, SDLT possibly due.

First some background:
  • Parents in law are separated but still married, very amicably, not worried about one screwing over the other one.
  • Mother in law wanted to buy a house, but having retired struggled to get a mortgage, mortgage broker found one lender that would offer her an interest only mortgage, but obviously needed an exit plan. Somehow the exit plan was that she owned another house with her husband, but that it needed to be solely in her name. (I wasn't involved enough at this point to understand why/how this was the case!)
And then some facts:
  • Father in law owns no property any more, but lives in the "family" house he used to own with his wife.
  • Mother in law owns the "family" home outright, but doesn't live there. She also owns another property with a mortgage that she lives in.
  • At the point father in law transferred his half of the property to his wife, the half would have been less than the £125k SDLT threshold (not sure if that applies in this case anyway)
  • Mother in law has re-mortgaged since this happened, and no longer needs the "family" home as a backup with the new lender. By the time she next needs to remortgage the forthcoming lifetime mortgages should have been available for a while.
  • Neither of them have made any capital gains or losses.
  • If each of them owned the property that they lived in, when they pass away, their estates would each be less than the single persons IHT threshold
If they were to pass away, they would probably want the following to happen (need to confirm exact details with them)
  • If mother in law passed first, she would want father in law to have the "family" home that he currently lives in, and both of her adult children to have everything else, including the mortgaged property that she owns and lives in
  • If father in law passed first, he would want mother in law to have everything
  • Remaining one of them would then want children to split everything once they pass.
So here are the bits that I'm not sure on:
  1. Mother in law is currently accruing capital gains on the "family" home as it is not her main residence. I presume that CGT will be due on the amount of gain when she passes? I also presume the funds can come from her estate? Do these remain true if it is passed to her husband who already lives in it?
  2. Can mother in law transfer "family" home back to her husband (before either of them die) without paying SDLT?
  3. If she gifts/transfers the "family" home to her husband, would she owe CGT for the gain whilst she owned both? https://www.gov.uk/capital-gains-tax/gifts says there is no CGT if she gives it to her husband, unless they are separated. I guess the question is are they "separated" if they haven't lived together in years, but are still married?
  4. Both properties together would be over a single persons IHT threshold, is this likely to be an issue if she still owns both properties?
  5. Anything else I've missed, or should be doing/suggesting?
Thanks for reading that, sorry it became longer than I was expecting! Any thanks for any answers/suggestions!

Alex

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Confusing property arrangement for my in-laws

Postby bd6759 » Tue Oct 17, 2017 7:08 pm

Briefly

1. CGT is ayable on a disposal. Death is not a disposal, so there is no CGT to pay when she passes.

2. SDLT is paid on consideration. If gifted, there is no cosnsideration so no SDLT.

3. CGT would be payable on this disposal because they are separed in circumstances that are likely to be permanent.

4. Its an issue if you dont want to pay IHT. Transferring the property back maybe benefical. You'll need to do the sums.

5. DIY wills are never a good idea. See a solicitor.


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