Mortgae transferred to me

[Livermore2]

Hello,

I took over a mortgage from my son and fully paid off the mortgage balance with title transferred to me.

Now, where inheritance tax is concerned what are my options, please?

I beginning to feel we made an error.

Thank you for any advice.

[someone]

As far as inheritance tax goes, I don't see any obvious error unless the price you paid was significantly less than market value and your son made a gift of the rest.

Off the top of my head these are the things that I think you need to think about:

1. You bought this property for consideration (being the outstanding mortgage) so SDLT was potentially in scope (including the additional rate if the price was over 40K). As legal title was transferred I assume solicitors were involved (possibly by the bank to remove the mortgage restriction) so they should normally have handled the SDLT return but you will find in the small print that "they do not give tax advice" so if they reported nil consideration incorrectly then it's still going to be on you for both the tax and the penalties for late reporting - if they explicitly told you that this was a nil-consideration transaction (which they shouldn't have as this is tax advice) then they might be on the hook for any penalties but you'll still have to make good the SDLT (if any).

2. Your son disposed of this property other than as a bargain at arms length, so CGT is in scope on the market value of the property, not on the purchase price. (Note that SDLT is calculated on the consideration paid while CGT is calculated on the market value so it's possible for one to be zero and the other to be non-zero on the same transaction, e.g. gifts have zero consideration so no SDLT but the donor still incurs CGT on the donor)

From an IHT purpose, assuming you paid full market value to your son then there's no IHT impact. Your estate increased by the value of the property and decreased by the amount you paid to your son (which are the same as paying off the mortgage that your son owed is the same as paying money to your son), you just moved from cash to physical asset. If you paid full market value then there's no GRoB concerns as there's no gift.

If your son (part) gifted the property to you then there are all sorts of complications. In the simplest case (this is an investment property that neither of you live in) then the gift will remain in your son's estate for 7 years and the gift is now part of your estate. If you were to gift it back now (and assuming the previous transaction was recent so no significant change in value) then it would remain in your estate for 7 years but there would be no SDLT (gift so no consideration) and no CGT (no market value change)

If either of you live in the property then it's scarily complicated. If you gift a property that you live in then at it's most basic, the recipient will be on the hook for CGT from the date of gift when it's sold and your estate will be on the hook for IHT on the probate value of the gift when you die. I would suggest that you require paid for advice if you want to try to untangle this - much of what you'll find on the web is either wrong or hides subtleties that make a huge difference to whether a "plan" works.

[someone]

To be clear because I missed commenting on it before: if the property was your son's only or main residence then there was no CGT on the transfer to you (still SDLT though), but the gift was a GRoB but now that you own it, if he's living in it and you aren't, there's no PPR should you dispose of it (and disposing includes giving it away, not just selling it).

[Livermore2]

Hello,
Thank you for such detailed response. Never realised what I did could turn out to be so complex..
I have acted on your advice to get legal counsel, in the meantime I am wondering whether it may be possible for my son just to repay me and all be reversed.
Thank you.

[someone]

Probably not. It is a mater of fact that the house was transferred to you (unless there's some weird legal reason why it wasn't). So any attempts to reverse the situation just make it more complex as there are now two transactions, not one undone transaction.

[Livermore2]

Oh!.
Thank you.
I was about to contact a law firm for advice but it seems I will not bother to do so now.
What would be the implications, if, in drawing up my Will, I name him as beneficiary ?
Thank you.