IHT

[AliRoger]

Hi,

I would be very grateful if can kindly shed some light into the following matter.

Synopsis of my Estates:

Estates Ownership Year Purchase Purchase Value Primary Residency Year Sold Market Value
Property 1 Brother 1991 £60,000 Brother 2008 £240,000
Property 2 Myself 2004 £220,000 Brother & His Family - £400,000
Property 3 Myself 2011 £210,000 Myself - £300,000

Brother – (History)
- My brother owned one bedroom flat, Property 1 – (above). However, he was unable to sell his property due to lack of market demands.
- Moreover, he was unable to obtain additional mortgage to buy his family home, due to his limited financial situation.
- Hence, I obtained a sole mortgage under my name, with an agreement that he would pay off the mortgage, once his Property 1 was sold.

- I took out a mortgage for a 4 bedroom house, Property 2 – (above), where my brother & his family currently reside.
- My brother eventually sold his Property 1, and I paid off the outstanding mortgage on Property 2 with the sale of his Property 1.

- However, due to unforeseeable family issues (illness), Property 2 – (above), still remains under my sole name.
- Thus, currently I have two properties (Property 2 & Property 3 above) under my sole name, and both are mortgage free.

- I understand the gifts will be subject to Inheritance Tax, if I give away more than £325,000 in the 7 years before my death.
- Therefore, I am very worried about any potential implication of inheritance & capital gains taxes

Questions:
1. Can I be exempted of any taxes on Property 2 (above), by proving bank evidences that money (mortgage) was:
a. Paid by the sale of my brother’s flat (Property 1 – above), and
b. NOT with my own savings, and
c. That Property 2 above, is my brother & his family primary residency, and I have NO interest in that property?
2. When I die, what will be the total Inheritance Tax on my estate?
3. Will there be any Capital Gains Tax?


Any help/advice would be much appreciated.

Many thanks.
Ali.

[someone]

Yes, this can be done - you need to show that effectively you have never had a beneficial interest in the house.

However, given the sums at stake, you will need professional advice - some of it will depend on exactly what was said and done when the house was bought but prima-facie, if your only involvement was to effectively provide a guarantee to the bank that the mortgage would be paid, then the house is, and always was, your brothers and the transfer into his name isn't even a gift.

If HMRC decide to challenge the transfer then there is both CGT and IHT potentially at stake. And once you've transferred it to your brother, the CGT becomes due. So it's important to ensure everything is clear and above board before doing anything irreversible!

[AliRoger]

Will the "professional advice" be from an Accountant, Solicitor, or both?

Many thanks for the response, much appreciated.

[someone]

An accountant.

The actual transfer, as there is no mortgage, is something it is possible to DIY (From memory I think it's form TR1) but I'd probably shop around to find a solicitor to file the paperwork (but make sure the solicitor understands the tax situation - you don't want them saying it's a gift on the transfer when it is not!)

I believe the CGT position is something it is possible to get clearance from HMRC from prior to the transfer - and a good accountant will be able to advise.

[AliRoger]

Thank you for a constructive advice. much appreciated.