Trying to avoid Equity release for my mother in law

[jamdodger]

hello I wonder if anybody can help me with a query about capital gains tax?

My mother and father in law are in their late sixties and are not wealthy at all -far from it. Both still work but age will catch up and they will have to retire soon. They have been looking at Equity release schemes as the only asset they have is their little house valued at £200,000 ish. They have no mortgage but no savings either.

They have always wanted to leave their house for my children, and we are all worried that this may not be possible if they are forced into an Equity release scheme to pay for their golden years.

I have suggested that by my wife and I giving them a lump sum through some savings and taking out a bigger mortgage on our house, we can guarantee their wishes and give them the retirement they deserve. They would transfer the deeds to my wife and on their death we would sell the house and divide it between my three daughters. They get to stay in their house forever with some money and my girls get their inheritance?

It seemed a great plan all round but I am worried that they/my wife/ my children would have to pay Capital gains tax?. I have done some research and the property is below the IHT threshold so Ok on that front but can' t seem to find a definitive answer on the CGT issue

Any help or suggestions would be greatly appreciated as this is causing my mum in law sleepless nights.

Kind thanks

Philip

[pawncob]

Normally this would be fraught with IHT/ reservation of benefit/POA regime problems but as the state is below the IHT limit, you can do whatever you like.
Rather than gift the house now, with potential CGT liability in the future, have it left to the grandkids in the last survivor's will. Uplift in value is achieved and no CGT.

[jamdodger]

Thanks for your advice.

Philip

[LozaACCS]

As Pawncob suggests a CGT liability will not arise unless the property is gifted or sold prior to death.
So the advice to do nothing and benefit from the tax free uplift on death is good advice, the problem however is that MIL and FIL are exposed to the potential risk of losing their equity in care home fees.
You could consider a gift into a discretionary trust with a claim for hold over relief under S260 TCGA 1992, (probably not necessary if the property is their PPR) MIL and FIL would then no longer own the property.
It is by no means certain that this would escape the scenario of losing their equity, there are many variables that need to be considered,for instance the age/health of your FIL/MIL, the construction of the trust, whether the contribution should be a purchase at an undervalue or a loan charged on the property, you should also bear in mind that a charge to POAT (a charge to income tax) can arise whatever the level of exposure to the NRB for IHT

[strawn]

If you pay below the market price for the house, and then your parents should need "care" from the council in a way that is reasonably predictable, you could be guilty of Deprivation of Assets and find yourselves in the soup. If they sell you the house and then you find yourself in difficulties (e.g. bankruptcy, divorce) they could lose the house altogether. For God's sake go to a lawyer: this is not a subject suited to amateurish fannying around.