This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies. To find out more about cookies on this website and how to delete cookies, see our Cookie Policy.
Analytics

Tools which collect anonymous data to enable us to see how visitors use our site and how it performs. We use this to improve our products, services and user experience.

Essential

Tools that enable essential services and functionality, including identity verification, service continuity and site security.

Where Taxpayers and Advisers Meet

Pre-owned assets taxation!

abbie190782
Posts:4
Joined:Wed Aug 06, 2008 3:48 pm

Postby abbie190782 » Fri Jan 26, 2007 2:26 am

My father lives and owns outright a property in wales which he purchased approx 10 years ago for £26,000 it is now worth approx £100,000. My father no longer works and is on disability benefit.
What we would like to know is, is it possible for me to purchase the property from him for £20,000 as we would like to give him a better quality of life as there are certain things he would like to improve on the house,we thought this would be straight forward but seems to be a minefield!! (pre-owned assets etc...does this apply?)We do not want to get involved with these companies that release the equity for you.
I have this cash so no mortgage would be required,but are just concerned about the tax implications etc i.e will he have to pay any? i do realize that i will pay capital gains on this eventually. we would appreciate any advise on this as it seems to be one big headache.
Thank you
Richard Sanders

kirstie.williamson@a
Posts:328
Joined:Wed Aug 06, 2008 3:14 pm

Postby kirstie.williamson@a » Fri Jan 26, 2007 4:09 am

Why do you need to purchase the property ? Why not just make him a gift of £20k ? If his estate is well below the IHT threshold (£285k) then even if he died before spending it there would not be an IHT problem.

Alternatively you could make him a loan which is repayable on his death. This would have the effect of reducing his estate by £20k plus rolled up interest ( if charged).

You are correct about the CGT - if the house rises in value after you have bought it then you will pay CGT on the difference between acquisition and sale proceeds.

I am not sure what you are trying to acheieve here. Are you concerned about local authority care or IHT or both ?

I think we need some more information.

regards

KW

abbie190782
Posts:4
Joined:Wed Aug 06, 2008 3:48 pm

Postby abbie190782 » Fri Jan 26, 2007 4:48 am

Thank you for responding, my father was initially going to release some equity from his property via a mortgage company (he has just reached 60) but we have heard the charges can be horrendous!..so we thought the easiest way of getting around this would be for me to purchase the property as he needs approx £20,ooo for the work to be done on the house, then i would own the house and this would also be an investment for myself.
i am one of three of his children. the other 2 are not in a position to help financialy so we thought this to be the best cause of action. Are there any pitfalls if we choose this option and would my father have to pay any tax?

The idea was in the event of my fathers death if i sold the property at a later date i would give a share to by brother and sister
Regards

Richard

abbie190782
Posts:4
Joined:Wed Aug 06, 2008 3:48 pm

Postby abbie190782 » Fri Jan 26, 2007 5:16 am

to add to the above, this seemed like the only way of protecting any possible inheritence but as stated i am the only one who at present can afford to do this in our family.
If i was to give him a loan or a gift as you suggest there would be nothing stopping him at a later date on trying to gain more equity from one of these companies.This is why we thought me purchasing the property would be the best idea?
I have my fathers interest at heart but also trying to do the most sensible thing as well!.

Regards

RS

CDavey9501@aol.com
Posts:513
Joined:Wed Aug 06, 2008 3:13 pm

Postby CDavey9501@aol.com » Fri Jan 26, 2007 5:44 am

you could put a charge on the property.

JAB
Posts:123
Joined:Wed Aug 06, 2008 3:29 pm

Postby JAB » Fri Jan 26, 2007 6:10 am

As an aside to this query, if anyone's clients are unscrambling a tax planning scheme to avoid the POA charge remember that they can avoid POA charges accrued since 6 April 2005 by electing back into the GWR regime. The deadline for making this election for schemes which existed on 6 April 2005 is 31 January.

kirstie.williamson@a
Posts:328
Joined:Wed Aug 06, 2008 3:14 pm

Postby kirstie.williamson@a » Fri Jan 26, 2007 6:25 am

I am not sure why you need to "protect" your inheritance. Is the remainder of your father's estate more than £185k which would take him over the nil-rate band - I suspect not if he is struggling to find £20k for house repairs. In this case there will be no IHT on his death anyway.
I think that you want to ensure he doesn't use a commercial equity release company because this would reduce the amount you and your siblings would inherit.
So here are your options:
1. Give him the money - no strings.
2. Lend him the money - take a charge over the property - and it is repaid to you on his death. The property is sold and the balance after repaying the loan is split 3 ways.
3. if you buy the property for £20k then you father has made a gift to you of £80k ( ie the difference between what you have paid and the true market value).
This is a gift with reservation so the £80k will still be in his estate on death - probably not an issue though because no IHT should be due anyway.
A bigger concern is that on his death you will sell the house for say £150k and presumably pay £50k to each of your siblings. You will be left with the entire CGT bill for the property payable out of your £50k. You could ask your siblings to contribute towards the CGT bill by reducing their shares but this hardly seems fair since if your father had kept the house to his date of death there would have been no IHT and no CGT for anyone to pay.
Looking at your post again I also see that you say "if" you sold the property at your father's death. What happens if you don't sell ? Does that mean that your siblings don't get anything and you have effectively acquired your father's only asset for £20k ? Your siblings should be entitled to a third each shouldn't they ?
4. You could purchase a 20% share for £20k at current market value. This would be attract a pre-owned asset charge. This could be avoided if your father elected for his property to remain within the IHT regime - there would be no adverse tax effect as your father's estate is below the IHT threshold.
You would still have CGT to think about on your 20% share.

Finally if your father gives away any part of his property then the local authority can still take the value of the property into account when calculating care costs if they conside that he has deliberately deprived himself of assets.

You should really sit down with your father, siblings and a professional advisor to ensure to you have considered all the angles.

Hope this helps.

KW

abbie190782
Posts:4
Joined:Wed Aug 06, 2008 3:48 pm

Postby abbie190782 » Fri Jan 26, 2007 7:04 am

thank you for your comments, we have a lot to think about.It would appear that nothing is ever quite as simple as it looks!
i guess the real problem is that we are (as well as my father) trying to protect any inheritence which will mainly be lost if he releases money through one of these equity companies.so it seems the only way to proceed with this is either the loan which you mention with a charge or i purchase the property.
If i was to purchase it at the mentioned sum where would this pre-asset tax come in to play and who does it effect?

thank you for your help, things are slowly becoming clearer!

Regards
RS


Return to “Property Taxation”