Capital Gains Tax and Houses

[Daphnetheferret]

If someone is named on the deeds of a property and it is agreed that they will be removed does CGT have to be paid? What if no money changes hands when they come off the deeds?

I have a previous thread about the situation but things have moved on and I have more information. Hence a new thread but briefly:

House purchased by DH and a friend, friend wanted out but DH couldn't get a big enough mortgage to buy him out so his Dad (my FIL) was put on the mortgage and the deeds (joint borrower sole proprietor mortgages weren't a thing at the time). Subsequently FIL had an inheritance and paid off the mortgage as a way of giving DH his inheritance early, he did not come off the deeds at that time they just paid off the mortgage and things continued as they were.

For various reasons FIL may want to remove his name from the deeds.

FIL has never lived in the house, he has never contributed to upkeep/improvements and although he is named on the buildings insurance policy because his name is on the deeds he hasn't paid towards it. No rent has been paid by DH to FIL, but DH has lived in the house and paid all bills throughout.

FIL is retired but fit and healthy, no reason to suppose he might die or require care. He has his own house that he lives in mortgage free.

Will there be CGT? If so how much? Are there any other tax or financial implications we need to worry about?

I think I get what you are asking.

If the property has never been the FIL's residence then CGT is payable on the full duration of ownership, as he will not qualify for Principle Primary relief.

The gain will disposal cost, less the acquisition cost and fees (sols etc)

The gain is then taxed as income but paid as a capital gain.

i.e

FIL salary is £30k per annum
the gain is £70k

You would pay £7,500 @18% and £62,500 @ 28%

Basic rate band is £37,500 20/21

This is very rudamentary, but hopefully gives an idea

I think you really need to ask an accountant.

@fromdownwest what if he disposed of it for nothing?

He could gift it now and it would be potentially exempt from IHT but what about CGT?

And is there anyway of him being able to say that the cash he put in years ago was the gift? If so does this change things?

If he gifted it as you say it would be a PET for IHT purposes, after 7 years, no tax payable.

Even if no money changed hands, then the disposal would be 'market value' for tax purposes. You can not dispose of an asset under value to avoid CGT.

@fromdownwest thanks that's helpful. FIL and DH own the property as joint tenants, would the market value for the purposes of CGT be 50% of the current value or assessed based upon the % of the value he contributed to the initial purchase?

This is really showing that they should have taken proper financial advice at the time but there's not a lot we can do about that. It may be that the best option is to leave things as they are on the basis that when FIL dies the house would pass to DH, potentially tricky if DH were to predecease him though.

There would also be potential deprecation of assets issues 're care home funding if FIL gives it to him at an undervalue.

Deprivation (not depreciation!).

@Chasingsquirrels

What would happen in practical terms if he was found to have deprived himself of assets?

Is there a risk of a forced sale of the house?

This is all very tricky, he really should have got proper advice when he put the money into the house as I don't think he intended to retain a share, I think he just wanted to help DH out.

No idea of the practicalities.
I'd suggest that while they should have got advice in the past they are where they are, but should definately get advice about how to move forward.

Joint tenants own 50:50 so FIL is liable for CGT on the difference between the market value at the time he became the owner and the market value now less any allowances for improvements and purchase costs. The fact no money changed hands doesn't mean he doesn't have to pay tax on the gain. CGT is quite complicated and the rules have changed recently so worth speaking to an accountant

Re deprivation of capital, in practical terms the LA can assess him as still having the asset if they're doing calculations around care affordability - in many cases this means they won't fund care. Realistically shouldn't be an issue in this case as he has another house mortgage free which would be used for care fee if required. But yes CGT still has to be paid on the capital gain (over and above annual exempt amount etc).

@CarinaClaws so irrespective of what money was put in and what he gets back he would pay CGT based upon the difference between 50% of market value at purchase and 50% of market value as disposal?

@Dinosauraddict thanks, unfortunately he's now talking about an equity release on his primary property. This is all getting very worrying.

Please get advice from a property specialist accountant. This is a very complex scenario - your bog standard accountant won't have the knowledge/experience to give proper advice. I speak as a bog-standard accountant - there's no way I'd take on this kind of work and I always refer to specialists.

@Badbadbunny thanks, I will be pushing him to make sure he gets proper advice before doing anything. I think proper advice at the outset would have prevented a lot of this, it is all getting very messy now as there are other inheritance/property related issues.

I'm trying to get some ideas about what issues we need to be thinking about and what options there are at the moment.

In addition, I think it may be prudent to obtain legal advice as well as taxation advice. This should have been done prior to going on the mortgage, however, we are here now. If he were a client of mine I would insist on independent legal and taxation advice prior to any activity.

I would also suggest looking to obtain a POA now, whilst he has his full faculties.

I think due to the other issues legal advice might be the priority, and a LPA.

This has all come about because SIL wants help buying a house and I am starting to get worried that he is being pressured, probably not intentionally but all the same...….

Sorry, legal advice a priority, LPA in due course, he's competent at the moment.

My parents have all this sorted and squared away so it is a bit of a shock how messy this all is. I'm going to try to get him to see their financial advisor and solicitor I think. Not sure which to send him to first though!

@Daphnetheferret look for someone who is STEP badged (Society for Trusts and Estates Practitioners) - they'll be able to give you advice on all of this in terms of CGT, future finance planning etc. If he effectively gifts his share of the property, and does equity release on current home, you could have a major deprivation of assets issue depending on his age/health etc. IHT sounds like it would be less of an issue depending on the value of the houses as he clearly doesn't have a tonne of other assets, and you could later utilise the residence nil rate band assuming property was passed to his DS/DD.

And LPA has to be done before he loses capacity, so always best to do it earlier than you think you'll need it. You don't need a solicitor for that though, you can do it all online and pay a small fee directly to the office of public guardian.

Thanks @Dinosauraddict that is all really helpful. There are a couple of law firms that are STEP badged local to him. I think this is probably be best place to start so he can get advice on how to get out of the situation with our house and how to free up funds for SIL, and update his will if necessary too.

@Dinosauraddict - Exactly this, the amount of my clients who have waited as it was deemed a priority, and then their parents have a stroke or illness whilst away on holiday is scarily high!

No I appreciate that, it just doesn't solve the immediate situation, but I will definitely suggest that FIL sorts this, he almost certainly needs to update his will off the back of all this too.

Sorry another question!

If a third joint tenant was added would that affect the CGT position? Would that be treated as disposing of the difference between a 50% share and a one third share?

If we added a third joint tenant now and then in a couple of years FIL wanted to come off the deeds would the CGT be on one third or based upon half for the years there were two joint owners and then a third for the remaining years?

I am going to get proper advice before anything is done but FIL doesn't seem keen on seeing anyone and until some decisions have been made about what SIL is doing it is difficult to know what I am getting advice on!!!

Has the property gone up in value? When my father died we children co-owned half his house (which had been his mother's half) and it had gone down in value since we took on the joint share. CGT is paid on gains. If there are no gains there is no CGT. there is an annual allowance too and costs can be set against it.

Now is a good time for him to take some advice. As far as I know the duty is on him to report a gain to HMRC (or to claim a capital loss to set against his future capital gains if he is making a loss on this property - you will need the value when it was acquired and the value now). It is not like with stamp duty when the solicitors pay it on a sale as this is just a gift between the family members.

Was rent due from son to father for the rent free use of the half of the house? Did they have any agreement at the time? I know no rent was paid but was it agreed to be due? Even if held as jonit tenants as 50% did they have any kind of agreement or trust that the shares might not be 50%?

@Xenia yes the property has approximately doubled in value.

Can he use his annual allowance from previous years or is it only the current year?

There is no written agreement regarding a trust or regarding any rent. The intention was always for DH to have somewhere to live he's maintained, paid for and improved the property. FIL has had no involvement whatsoever since the mortgage was paid off.