CGT inheritance and tenants in common

[Needavacaynow]

Can anyone advice as we've got ourselves in a tangle and can't work out the best course of action.

My mum owned her own house in a cheap area of the country and after my father died and I had a baby she decided she wanted to move closer. As property prices were much more expensive we gave her a lump sum equating to a third of the value so she could get a similar house nearby. Over the years we paid for new kitchen, bathroom, repairs etc. She never paid rent and for all purposes it was my mum's house and it was just us helping her out with no strings.

When the house was originally bought over 20 years ago, we were advised to put it as tenants in common with a third in my mum's name, a third gifted early to me by my mum as an inheritance and a third in my husband's name to reflect our financial contribution. The initial intention was that the third my mum retained would go to my sibling upon her death but since then things have changed and she would prefer it to go to her grandson, my son. She has no other assets.

As my mum is getting on she wants to sort her will and made contact with a solicitor. With my son now an adult, she wanted to gift him her third of the property and my husband and I thought for simplicity we would do the same. However, the solicitor has advised us we would need to pay CGT for both thirds. The property has doubled in value from around £105, 000 to £220,000 during that time meaning we need to find tens of thousands which we simply don't have. Does this seem accurate?

It seems that my mum would have been much better not to have followed the initial advice from the conveyancing solicitor to put the property as tenants in common but to have accepted our gift and simply adjusted her will as that way she could have left it entirely to us or our son with no tax to pay. This way we will have to sell the house to pay the tax.

Can anyone please advise what to do? Be gentle as we all had good intentions, thanks

Why does your mum want to give away her home at this stage? Do she not need it to live in now?

Sorry I cannot follow the 'logic' of you gifting your DM money but then owning two thirds of the house, which makes it sound as though you bought the house between the three of you? And makes the house your second home? Apologies if i have misunderstood but is that why CGT would be payable? You probably need specialist advice, not all accountants/solicitors are as well informed as we might hope.

What is the benefit or advantage on giving your son a share in the house now? Your mother still needs to live in it. and if he owns a part share in a house he won't get the (current) advantages of being a first time buyer if he buys somewhere he can actually live in. And he will have a share of a house that HE then owes CGT on when he sells.

If your Mum is thinking about her Will, she is thinking of a time when she has gone. Wait til then, sell the house, your DC can have his share in cash, you can pay your CGT out of your share. You will still have a good return on the money you put in.

Yes, it would have been better to have just given her the money as a gift, but then there would have been other risks: the whole lot taken for care costs (as it now stands your shares will not be considered towards care costs), she might have got re-married and made her house vulnerable in ways that marriage can, etc.

The house is now owned as mum 1/3 you 1/3 and your husband 1/3. This is reflected in a deed of trust and marked on the deeds as tenants in common. When I changed ownership of my house I had to think about tax due to it being classed as a second property by my family being on my deeds, you putting the house in your and your husband name is sounds like you weren’t advised at the time of this implication. If your mum wants to leave her third in her will to your son then she just needs to make a will. No amendment needed now. On the face of things it seems very irresponsible for her to give up her security of the house now so I have assumed she just wants to gift it on her death. I understand CGT would be payable if you did a transfer now I.e whilst she is alive is that what the solicitor has said..

Will your mum's estate be subject to IHT when she dies?

Presumably the point of making you co-owners was to prevent your mum leaving the whole house to someone else, given that you had contributed to it. Doesn't sound like a tax planning measure.

Thanks for all your replies. To answer some questions, my mum simply wants to have everything sorted before her time comes and the house, as before, would still be hers to live in for the rest of her life with no restrictions. Tenants in common was something advised by the solicitor and we were told it simply safeguarded all our interests but we were never informed of all the implications such as CGT.

Taking everything on board it seems much more sensible for my mum to 'will' the house to my son and for us to take the hit for the CGT which will sting as we are both retired with a limited income. For those who said about selling the house, we'd much prefer not to as it's a nice little house which is great for either a retired person or a person/couple starting out and is well situated for work/commuting and close to other family with good neighbours. I don't think my son could get anything better for the money and it makes my mum so happy to know he'll be set up as sadly he has a life changing illness that will get much worse as he ages.

Thanks again everyone

OP, given your update I would seek specialist advice.

If you want your Ds to live in the house, why could he not inherit his third and you and DH continue to own your thirds? Then leave your share to him in your own Wills, with taxes to be paid from your own home?

But in making provision for a young person I would seek specialist advice on tax, the potential for a trust, impact on any future benefits etc.

Do not rely on MN!

Let her gift her third to her grandson on her death. In her will.
no need to incur CGT now.

then when your son inherits and moves in, you can gift your 2/3 to him in your wills.

unless there is a reason to gift it to him sooner? And £ to settle the CGT.

Your mum maybe needs to leave her share of the house to your son in her will to make the tax situation a little easier, and at least kick the tax can down the road. If you mums estate will have an inheritance tax liability it would be different.

I’m assuming your son will be living with you, not his grandmother?

Given your sons health issues is it maybe unlikely that he will be able to make use of first-time buyer status anyway? If so, it wouldn’t matter him losing this so if it makes your mum happy then she could gift him her third now. The downside of this, is that your son would obtain the house at it’s current value (1/3rd of £220k). If he wanted to sell the house when your mum dies and the house is then worth £330k he will have to pay CGT on his share of the the property sale (and you on yours) as it is a house that was not his Principal Primary Residence. If you son did live in the house with his grandmother from the time he is gifted it then he could probably get full PPR relief on his third and avoid CGT.

In order to most-efficiently gift your 2/3rd of the house to your son then you and your husband could nominate the property as your Principal Primary Residence with the taxman (I suggest also putting all the utility bills in your name). Then if you transfer the 2/3 to your son in a years time this would give you some PPR relief on the CGT.

I suspect the best thing will be for your mum to leave her 1/3 to your son in her will. When she passes you sell your 2/3 to your son (could your son get a mortgage for the 2/3 ?); you could use your 2/3 proceeds to pay the CGT and then gift your son the remainder of the balance to pay off most of the mortgage so in effect he will only have a mortgage equating to the CGT and stamp duty etc. you will have paid. Or maybe your son could simply get a loan/mortgage to the value needed to pay your CGT in return for the gift?

There’s nothing stopping you doing the PPR thing, but be aware you will lose PPR on your current home for the time that you have PPR on your mums house as you can’t have two Principal Primary Residencies at the same time.

OP, as incognitomummy said, you could leave it as 2/3 owned by you until you die but I understand if the concern is an inheritance tax liability down the line as it could be that you are already over the IHT threshold for example (you don’t mention your own financial position asset value wise).

The only sure-fire way to avoid CGT further down the line is to not own things to start with but to put them into trust and/or limited companies and control them rather than own them; this is how the truly rich do it.

Thanks Baalsatanas for your thoughtful reply- your wise words have definitely given us lots to think about and some good options we hadn't considered🫂.

I spoke to someone today who suggested gifting the maximum CGT each year to our son. At £3k each or £6k collectively per annum it would take about a decade to do and even longer if price rises continue but again it's another option to minimise what needs to be paid or at least reduce the rate at which it increases. I know this can be done through self-assessment but haven't yet researched if we need to involve land registry and solicitors incurring additional charges.

For the reasons you outline, if you think house prices will go up between now and when she does then she should leave her third to your son in her will instead of giving it to him now.

Would you or your son live in the house after her death?

In order to most-efficiently gift your 2/3rd of the house to your son then you and your husband could nominate the property as your Principal Primary Residence with the taxman (I suggest also putting all the utility bills in your name).

You cannot nominate a house that you do not live in as your Principal Private Residence.

There's a lot of misinformation on this thread. OP you need to speak to a tax adviser about the CGT and IHT implications before you take any action.

I think you have blinkers on. A person is quite capable of living at two addresses at the same time spending time at both and can nominate either of them as the PPR. Plenty of people do this.

I had forgotten about the 2 year time limit for nominating the PPR though, so that rules out doing it immediately. However, this 2 year limit resets every time the property ownership changes or if a property starts to be or ends being let out. So every time they gift part of the 2/3 to DS they get a new 2 year time limit.

Gifting 1/10 of the 2/3 each year is a nice solution, albeit requiring solicitors and land registry amends which may ultimately negate the CGT avoidance benefit significantly.

That said, if they don’t nominate then HMRC could decide on the facts - basically whose name the bills are in, how much time is spent there, where the OPs bank statements get sent to etc.

If OP does move in to the house when mum dies then after a while sells their share to DS; HMRC would most likely, if they enquired, determine that “mums” house is the OP’s PPR as it will in fact be OPs main residence - so OP would gain a bit of CGT relief.

Perhaps the optimal solution is for OP to gift 1/10 of the 2/3 to DS when he inherits or is gifted 1/3, to get a new 2 year time limit, then for OP to move in and nominate PPR at the property of which they now own 18/30. I guess it depends if OP wants to live part of the time at the 2nd property. If the idea is to leave the OPs current home to DS when OP dies, then losing that bit of PPR will not matter in the slightest.

If you don’t think your estate will have an inheritance tax liability when you die and want to maintain control in case DS becomes a gambling addict or something then just keep the 2/3 in your names until you’re gone.

I still think DS getting a mortgage or loan to cover the CGT payable at the time is easiest and neatest if you don’t want a CGT liability right now but do want it in DS’s name asap.

Seems best for your mother to retain her third and gift to your son in her will. You can then calculate the CGT on your share and see if he can get a mortgage or loan for this amount and buy the rest of the house from you at that price. That's a very good deal for him if he has a reliable income. If he doesn't you might be better off retaining part-ownership of the house so you can have input into maintenance etc.