Help! Advice needed please about inheritance and capital gains tax

[whattodo2016]

Sorry, this is more a question of Would IBU not to sign some documents?

20 years ago, after my parent's divorce, my sister and I bought a house with my mum, (so we had a third ownership each) We subsequently moved out in our late 20s leaving my mum to live in the house paying the mortgage. She still lives there. The house is worth about £150,000, (in the North) Our brother has recently been advising her that as my sister and I still remain on the mortgage, we will be subject to Capital Gains Tax when she passes away and if we sign the house totally over to my mum we will not pay any tax as we will inherit (under the threshold) as part of the will. My mum thinks this is a good idea too.

Is the advice that he is giving her accurate?

If my mum were to need a nursing home, couldn't she lose all her property if we sign it over? At least this way, they can only take a third, can't they?

Lastly, could our brother be pulling a fast one? As it stands my mum's third of the house goes to our brother. If we sign it over, I am concerned that he will somehow encourage her to make her whole will out to him.

We all have a very good relationship with my mum but my brother is quite obsessed with money and has some influence over our mum.

Please could anyone tell me if his advice is accurate and also if there is anything we need to consider, that we haven't already thought of. Thank you.

I would see a Solicitor yourself as you need proper advice.

In short though I think you shouldn't do this (I'm not a Solicitor though). Yes the majority of your mum's estate could go on care, or she could leave it all to your brother. Or what if you needed the money yourself during your mum's lifetime.

I think you only pay CGT on the profits eg on the increase in value, which seems fair.

Your mum might live to 100 so it seems ludicrous to be waiting for her to die to get your money back to avoid a bit of tax!

Your brother is either being daft, or has some ulterior motive.

There would be no capital gains tax payable when your mother dies it would only be paid if the property was sold.

And if this is your mother's only major asset from the figures you've given there wouldn't be any inheritance on her death either.

You will have to pay CGT on a portion of your profit, if the house has increased in value.

You'll get a deduction though as it used to be your main residence and you can also deduct any costs of selling like Estate Agent fees from your liable amount, plus the costs of home improvements you've made or any money spent on the house.

Technically what your brother saying is right - you would be better off if it was your mums solely and under the IT limit. BUT, like you said, that's assuming she doesn't go into a care in her old age, where it would all get taken.

You'd also be leaving it completely at the mercy of your mum - where she could sell it/remortgage it/leave it all to the cats home. So you'd be crazy IMO to sign away an asset. I would rather keep it in my name and pay the CGT.

The Gov.co.uk website has a calculator where you can work out how much tax will be owed.

I'll start by saying I have no experience and I don't know.

But it doesn't sound right and never trust anyone especially family when it comes to money, you need to speak to a solicitor

You would be absolutely crazy to sign it over to your mum. Sounds like your brother has an ulterior motive.
If you sign the house over then you lose all rights. If your mum goes into a care home they will take the house to pay. Not just her third. Capital gains is only paid once a person passes away but as it's jointly owned it should go to your brother without an issue and you only pay capital gains tax if the property sells for more than 150k (I think) . Please don't sign your assets over. It will help no one.
We are selling my late fathers house. We have paid inheritance tax on it and if we sell it for more than what it was valued at (valued you 550 and sold for 600 then we would pay capital gains on the 50k and it's about 30% of that so 15k) hope that makes sense

Sorry meant to say capital gains is paid when person dies and house is sold for more than the valuation

Don't do it!

The government can take it for care home fees.

Capital gains tax is nothing compared to what you stand to lose.

Google it. It's not complicated on the amount your speaking about

Don't sign it over. The arrangements as they currently stand are sensible and the tax liability is not too bad. You are quite right that if your mother owns the whole house she could lose the whole house if she needs residential care in her final years

if there are inheritance tax concerns you need to get professional advice.

Your brother's plan sounds like it confuses a few things about tax. Capital gains tax impacts when you dispose of an asset, there are exceptions covering transfers between family members meaning that signing over your share to your mum might be classed as a disposal, so you could cause rather than avoid capital gains tax.

I'm not a professional and don't know the specifics but yanbu to question this.

No don't do it.
If you sign the house back you might have to pay capital gains tax anyway.

Agreeing with the poster who says that CGT is payable only when you sell.

So, you have a third share (ie £50k). This won't have been free, so say you bought the house when it cost £75k total, or £25k for the share.

Your gain is thus £25k.

You have an annual allowance of £10k, for capital gains, so your taxable gain would be £15k.

This is taxed at your marginal rate of income tax. (roughly) so could be about £3k in tax if you are a lower rate tax payer.

The gain could be further reduced to allow for the time period you lived in the house.

I suspect I can work out your brothers thinking...

Currently, I imagine your mother has left her estate to be shared between her three children. This means a third of the house shared between you all so in real terms if house sold for 150 then you and you sister would get 50k outright (from the third you already own) plus a third of the remaining 50k. This means your brother gets around £16k which us a third of your mum's estate and you and your sister get another 16k approx each.

This is fair considering you purchased the house fairly, you paid in and have earned that 50k.

If your mum owns the house outright and her will then shares her estate equally your brother share goes up to 50k and you and your sisters down to 50k. In effect you have forfeited your third each of your mum's third.

Hope you understand what I've written!

My brother is also money obsessed and works out plots and schemes around most things he does so I've had to become more savvy and think about different angles like this!

You need to be very careful, If you sign over your share to your mum as I think there are strict rules about CGT and selling property to relatives. I think you may still be liable for CGT even though no money has changed hands. HMRC would calculate the gain based on the current market value.

I think your brother is trying to pull a fast one.

Don't do it- I came on to say what topcat2014 and Note3 have already said!

The transfer to your mum will most likely result in CGT anyway - and you won't have received any money to pay that CGT. Get advice!

Yes exactly, the cgt won't be that much anyway. Tell him that you want to keep your assets in your name, simples. Why does your cgt matter to him anyway unless there is an ulterior motive? And if DM ends up in a home you lose more potentially.

Sounds a bit dodgy to me.

Note3 I read it that OPs mums third does go solely to her brother. So 50k for each sibling.

Just point out that it is illogical. That you should sign over a third of something so that you can inherit it back again. He's up to something.

Don't do anything without getting advice from solicitor and accountant. Only spousal transfers are exempt from CGT, if you sign over your part you are , even if no money changes hands, to have disposed of the asset at market value. This is so folk can't give assets away to avoid tax.

Yes, cgt may be payable on giving property away, though it depends on various things as always. Plus if you give your share to your dm she could do equity release, remarry, leave it to cats home etc. Definitely take legal and financial advice before you do anything like this.

Mind you this is a complicated situation - your dm is paying the mortgage but you all still own a third each. So does that mean that dm is effectively buying you and dsis a third share in a house, but not your db?

Families and money are difficult!

Captain hammer - ah I see, if that is the case I would still be against transfer for reasons already posted by others.

CGT is payable when you sell or otherwise dispose of an asset. "Nil gain - nil loss" transfers only occur between spouses. If you transfer your share to your mother, you are disposing of the property and CGT is due at the point of transfer. Both you and your sister would need to pay any CGT due.

Inheritance tax becomes due once your mother passes away, and is assessed on the value of her estate.

Where a deceased person's estate includes property that needs to be distributed amongst a number of beneficiaries then it's common for the property to be sold before probate is granted. The estate then bears any CGT arising on the deceased's share, and you and your sister would be liable for CGT on your shares. Inheritance tax is then assessed on the value of your mother's share, but as a PP mentioned, if this is her only real asset then it's likely there would be no IHT payable.

From a tax perspective it's worth remembering that whilst there are 3 owners of the property there are also three lots of Annual Exempt Amounts (current allowance is I think £11,000) and CGT is due on the gain, i.e. Disposal/Market value less cost EVEN if you don't physically get any cash from it because you've signed it over to your mum.

If your brother is genuine then he may not have realised that transferring it to your Mum could leave you liable to CGT anyway.

If he's not he may have realised that if your Mum needs care then her third of the house would be used to fund it, which could mean you and your sister will get something, but he wouldn't if 'his' share was used for the care fees (going by you saying your Mum is leaving her third to him).

Ah yes, i hadn't noticed that your dm's third goes to your db. Do you own it as tenants in common, so that you can each bequeath your third?

These situations are complicated - i suppose we might see more of them in future as more parents help out with adult dc house purchases. The thing about tax especially iht is that people do seem to come up with convoluted schemes - there was a thread a few weeks ago which also left people not understanding how any iht would be saved. I don't think people are necessarily trying to pull a fast one - they just don't always understand the full tax implications.

Thank you so much for the wonderful advice!! I feel in a much stronger position to argue the case rather than just having a gut instinct that I shouldn't.