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Where Taxpayers and Advisers Meet

Transferring Share of Property + Inheritance Tax

ritz13
Posts: 9
Joined: Wed Jan 02, 2019 4:54 pm

Transferring Share of Property + Inheritance Tax

Postby ritz13 » Tue Jan 08, 2019 8:04 pm

Hi Guys

So I was wondering if anyone can please help with the scenario below:

Me, my brother and my mum own a property that we have lived in since the start as our main residence

Me and my brother would like to take our names off the property as we are looking to move and make my mum the sole owner of the property (once the mortgage has been paid off)

Would my mum have to pay any CGT on this?

And could she then gift the property to us along with my other sister as a Potential Exempt Transfer (P.E.T)
Our understanding is that by doing this, we won't be liable to Inheritance tax she has gifted to us if she carries on living for more than 7 years from the date of this gift. Please correct us if i'm wrong?

Thanks

bd6759
Posts: 2964
Joined: Sat Feb 01, 2014 3:26 pm

Re: Transferring Share of Property + Inheritance Tax

Postby bd6759 » Tue Jan 08, 2019 9:01 pm

Would my mum have to pay any CGT on this?
Mum hasn't disposed of anything, so there can be no CGT
And could she then gift the property to us along with my other sister as a Potential Exempt Transfer (P.E.T)
Yes, but why would she do this? Why not just leave it to you in her will.

ritz13
Posts: 9
Joined: Wed Jan 02, 2019 4:54 pm

Re: Transferring Share of Property + Inheritance Tax

Postby ritz13 » Wed Jan 09, 2019 12:56 am

Oh I thought as me and my brother are taking our names off the property and just leaving it under my mum's name, our share of the property transferred to her would be considered as a "gift" that would be liable to CGT...?

Me and my brother are planning on paying off the remaining mortgage and then taking our names off the property and leaving it with my mum. Me and my brother will then won't be living there.

When you say she can leave it in her "will", wouldn't the value of the property be considered part of her "Estate"?

So let's say down the line, the property is valued at £600k and she leaves £200k each for all 3 of us in her will, wouldn't the amount above her nil rate band (think nil rate band is £450k atm) be taxed at IHT 40%..?

bd6759
Posts: 2964
Joined: Sat Feb 01, 2014 3:26 pm

Re: Transferring Share of Property + Inheritance Tax

Postby bd6759 » Wed Jan 09, 2019 1:16 am

Yes. Your gift is a disposal, so you and your brother are potentially liable to CGT. But if it has been your home throughout ownership, it will be exempt.

Possibly, but on the other hand you might be leaving yourself open to a higher CGT bill when you sell it. You need to take proper advice and crunch the numbers.

ritz13
Posts: 9
Joined: Wed Jan 02, 2019 4:54 pm

Re: Transferring Share of Property + Inheritance Tax

Postby ritz13 » Wed Jan 09, 2019 1:12 pm

Regarding your comment below, what if me or my brother move out of this property a year before the full mortgage has been paid to live somewhere else. So lets say we pay off the mortgage end of Feb 2020 but one of us moves out end of Feb 2019? So it may not be the main home throughout ownership, but it will be 5 years out of 6 years - will the person moving out have to pay CGT? And would there be any sort of relief (i.e PRR?)

"Yes. Your gift is a disposal, so you and your brother are potentially liable to CGT. But if it has been your home throughout ownership, it will be exempt."

thanks again! :-)

AGoodman
Posts: 612
Joined: Fri May 16, 2014 3:47 pm

Re: Transferring Share of Property + Inheritance Tax

Postby AGoodman » Thu Jan 10, 2019 1:36 pm

"And could she then gift the property to us along with my other sister as a Potential Exempt Transfer (P.E.T)
Our understanding is that by doing this, we won't be liable to Inheritance tax she has gifted to us if she carries on living for more than 7 years from the date of this gift. Please correct us if i'm wrong?"

If she continues living there it will be a reservation of benefit and the property will remain within her estate for IHT.

ritz13
Posts: 9
Joined: Wed Jan 02, 2019 4:54 pm

Re: Transferring Share of Property + Inheritance Tax

Postby ritz13 » Thu Jan 10, 2019 8:41 pm

"If she continues living there it will be a reservation of benefit and the property will remain within her estate for IHT."

Ahh i see! Does this only apply for the 7 years after she has made the "gift" or is this forever how long she lives there for?

From reading about GWR, it seems like the only way around this, is if we charge her market rate? If so, that's no good and it seems like our only real option is to accept that we'll have to pay 40% IHT on anything above her nil rate band...

...unless there are other tax efficient way of doing this?

Thanks

bd6759
Posts: 2964
Joined: Sat Feb 01, 2014 3:26 pm

Re: Transferring Share of Property + Inheritance Tax

Postby bd6759 » Thu Jan 10, 2019 8:55 pm

...unless there are other tax efficient way of doing this?

Thanks
Downsize, and gift the released equity.

AGoodman
Posts: 612
Joined: Fri May 16, 2014 3:47 pm

Re: Transferring Share of Property + Inheritance Tax

Postby AGoodman » Fri Jan 11, 2019 1:56 pm

She'll have a nil rate band and a residential nil rate band (possibly another £175k). If she is a widow then she may also have a transferrable nil rate band and transferrable RNRB (up to another £500k in total).

ritz13
Posts: 9
Joined: Wed Jan 02, 2019 4:54 pm

Re: Transferring Share of Property + Inheritance Tax

Postby ritz13 » Fri Jan 11, 2019 4:54 pm

Oh that'll be good, how would my mum be able to have a "residential" nil rate band that will give her another £175k ?

And yes, she is a widow. how would she be able to have a transferrable nil rate band and RNRB?

Thanks for your help :-)


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