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?

@Daphnetheferret for this type of asset you can't use previous years' allowances. You get an annual exempt amount. If you added an extra person now (I assume by gifting them a third of the property value) then there would be a partial disposal now (with a CGT liability) and then another one later (when you gifted away the rest of the property). This could be beneficial in terms of utilising 2 lots of AEAs, but would not resolve you of most of the CGT liability on a house that has doubled (I can't be more precise without more details such as values though).

And it doesn't matter that FIL hasn't been 'involved' in the property - he owns a proportion as an asset. CGT is quite literally relating to the capital gain of an asset (which if it has doubled is likely to be substantial). You do of course get principal private residence relief on your main home, but this is clearly not FIL's.

And also keep in mind that if you're adding a third person to the deeds now then he's effectively gifting them a third of £X which would also come under deprivation of assets. You don't have to give away a 'whole' asset for that to come into play...

And if he gifts part of his share to anyone other than a spouse you have to pay stamp duty on it.

That's really useful @Dinosauraddict, some food for thought. Thanks

@CarinaClaws - oh god I hadn't thought about SDLT!! That's another complication! Would that be based upon the full value of the house or the value of his share? The house doesn't exceed the current temporarily increased limit but would exceed the normal limit. If it was based upon just the value of his 50% share though it would be under the limit.

The 'buyer' would pay SDLT on the share that they take on based on the market value of the property. If that person already owns a property then the higher rate is applicable. You also need to pay a solicitor to do all the paperwork.

@Dinosauraddict

And also keep in mind that if you're adding a third person to the deeds now then he's effectively gifting them a third of £X which would also come under deprivation of assets. You don't have to give away a 'whole' asset for that to come into play...

I wonder if this perhaps is one way of getting where we need to be.

We'd need advice but if he added MIL to the deeds and DH added me then that wouldn't be a disposal that would attract CGT or SDLT or have IHT consequences. Everyone would own a 25% share.

Then DH and I could buy out FIL and MIL on a gradual basis using both of their CGT allowances. So £12,300 each this year which would probably be sufficient for them to give SIL a good chunk of help and we could repeat it each year until they are bought out completely and come off the deeds.

Does that sound like it might work? We will get formal advice before doing anything and get the paperwork sorted too.

I appreciate that whatever they gift to SIL would potentially attract IHT if FIL or MIL died within 7 years and that it is also deprivation of assets should either of them require care.

@CarinaClaws

The 'buyer' would pay SDLT on the share that they take on based on the market value of the property. If that person already owns a property then the higher rate is applicable. You also need to pay a solicitor to do all the paperwork.

So to clarify (and ignoring the current temporary SDLT limits) do you mean that if the share being bought is less than £125,000 there would be no SDLT?

Or do you mean that if the property is worth say £200,000 there would be SDLT due on £75,000, but if the buyer is only buying 50% then they would pay SDLT on £37,500?

I guess the latter otherwise people would be buying shares of homes all the time!!!!

I'm a first time buyer so probably not an issue if I am buying, but then I am only a FTB for the first transaction...……

Bloody hell this is complicated!!!

Theoretically DH can transfer half his half to you and FIL can transfer half his half to MIL and not attract SDLT but you can't then transfer bits every year, the transfer is a legal transaction and a solicitor would need to do all the paperwork every time and re register the updated ownership with the land registry after a contract has been drawn up.

You need to speak to a professional about this as if they are joint tenants and not tenants in common they don't own the property 50:50 anyway, they both own jointly and severally so there might be restrictions on transfers to spouse. Tenants in common is different.

If the property is worth 200k then SDLT is due on the half that is 'bought' so £100k. Currently a first time buyer pays no SDLT on £100k and a second property owner pays £3k.

Again, you do need professional advice.

Also there is no SDLT on gifts where there is no mortgage on the property by the way. I am sorry I have not read above to check if there is a mortgage here.

This is why if a someone marries and the wife moves into the boyfriend's flat which has a mortgage (very common situation or vice versa) then putting into the wife's name is not usually wise as there is loads of SDLT. Whereas if a house with no mortgage is transferred to a family member no SDLT at all. That was the case the last time I checked.

Bumping this up rather than making a new thread to avoid going over the background again.

Things went very quiet for several months, SIL found a house she liked to rent and FIL decided best to let sleeping dogs lie. We were obviously aware that the issue wasn't going away and advised FIL strongly that he get legal and financial advice.

However it flared up again recently. He still hasn't sought and advice and we have reiterated this to him.

I'm thinking through the options and as previously discussed the tax implications of buying him out of our house is a concern. I am also concerned that transferring a large sum of money to an elderly person who subsequently gives that money away is going to flag alarm bells regarding deprivation of assets. So I am wondering whether there is a possible route through this where rather than us buying FIL out of the house we help SIL directly with the purchase of her house, by contributing an amount that effectively evens things up.

I wouldn't want to part with the kind of money without having some kind of certainty/security and that was why we were thinking that we would want to buy FIL out. As an alternative would it be possible to draw up some kind of trust that would recognise that FIL's "share" in the house was reduced to reflect the money transferred to SIL or would this have similar problems?

DH and FIL currently own as Joint Tenants and I would be wary of changing that in case it caused problems either upon FIL's death or if he required care in future. We don't want SIL (or the local authority) to have a claim on our home.

Any ideas?

we help SIL directly with the purchase of her house, by contributing an amount that effectively evens things up.

You are trying to get out of a choatic situation which none of you are fit to handle by adding in more chaos into the mix.

You need to see your own lawyer and tax advisor, and despite lots of excellent advice on this thread, we can point out gremlins that are going to bite you, but you shouldn't be listening to random advice from us on how to resolve.

GO and see your own lawyer and accountant if FIL won't.

And STOP getting so entrenched in tax, legal and financial affairs, digging a deeper hole which will be harder to unpick - you need to separate out your finances from other houses, not mesh them together further!

I mean this with kindness but you need a short sharp shock message that makes you sit up and realise that this situation is already messy beyond what most people would be comfortable with, and any suggestion of now helping by throwing cash at SIL to "even things up" is just bonkers.

You need proper, expert legal and tax advice. I keep saying it so it'll sink in...

Believe me I know professional input is required to resolve this but I can't force FIL to see anyone before he is ready.

At the moment I am trying to think of ideas to run past the specialists with a view to sorting something out that is fair between DH and SIL but doesn't leave anyone in financial difficulty.

I'm a bit pissed off that all this wasn't sorted back when FIL went on the deeds of the house but there's not much I can do about that now, and honestly didn't realise quite how messy it was until very recently.

I think you need to find all the paperwork you have re the situation and see a specialist who will then unpick the mess and advise you on where you stand. Tax is likely to be the least of your problem. Depending on how the deed of ownership is held by your DH & your FIL there may be problems if anything happens to either your DH or his father. You need to know what is in their respective wills and if they haven’t got one you must prioritise this.
Tax is unavoidable.

The house is held as joint tenants so if FIL dies then the house reverts to DH irrespective of what is in his will and without being liable to IHT.

I am aware that it leaves me in a vulnerable position if DH were to predecease FIL.

I would say if FIL says he lent the money to his son to buy the house and at some point would need paying back the amount he put in.
Fil then could “ask” for the money back so the capital gains tax would be reduced as I would only be on the amount his half of the property had gone up less the repayment.

Then he could gift the same amount back to ds and hopefully not die in the next 7 years.

IYSWIM.

I think there are 2 things in play CGT and inheritance tax.

You might have to produce the money through remortgaging and show it to have gone from Ds to fil and then back to Ds.

I think a tax accountant might have a better idea or an easier way to do it