My mum bought a second property in 1994 for £44K for me, my husband and child to live in (I was a student at the the time, mortgage out of reach!) We have lived here for 8 years and my mum wants to give us the house, but we aren't sure about the IHT, CGT, stamp duty etc implications. As it's a second property that has not been her primary residence, I think CGT would be likely at the full market value - now worth approx
80K - as connected persons. However I have read (on the web) that she would be charged CGT on a second property, that there might be a reduction as she has owned the property for 8 years, and would this be based on the initial sale value or current market value? Would I be liable to capital gains on the property if I sold it one day? Can she make a gift of property (I think I would be liable to CGT on this) Or is a trust the best way to go? Please advise - we don't want to get in a tax loop and pay 2 lots of CGT, possible IHT, and stamp duty! Also should I approach an accountant or a solicitor first! Thanks Sarah
Didn't find your answer? Ask the community — no account required.
R
Ronald Raygun
"Connected persons" has no bearing. If she sells or gives it away to anyone other than her spouse, she will have to pay CGT because it is not (and has never been) her PPR.
In addition, if she does not survive for 7 years, there may be IHT implications, depending on the size of her estate.
No, CGT is not paid on full market value, only on the gain, i.e. £36k.
There are indeed some reductions. They compensate for inflation. First there is indexation allowance which has the effect of inflating the £44k to its (money equivalent, not market) value in 1998, thus reducing the gain by about £5.6k to £30.4k (depends on exactly which month of 1994 it was bought - I've assumed April). After that, taper relief takes over which would reduce the gain by 25% to £22.8k if she disposes of it after 5th April of this year (or by 30%,35%,40% if
1,2,3+ years later). If the annual exemption goes up to £8.1k in April, this would leave only £14.7k of the gain taxable. The maximum amount of tax she'd have to pay would then be £5880, but only if she's already a higher-rate taxpayer. It could be less than half that.
If she has a husband, and gifts him half the house first, and then sweet-talks him into giving you his half at the same time as she gives you hers, then two exemptions of £8.1k apply, leaving only £6.6k taxable, with each of them paying at most £1320.
No. Her gain would be taxable when she gifts it. Your gain would be exempt if the house remains your PPR during your ownership of it.
Yes she can, and no you wouldn't, she would, though you might feel morally bound to reimburse her any tax she has to pay.
I don't know about them, they seem nasty and complicated. But I think I read recently that this loophole had been, or was about to be, plugged.
It may be cheapest, from a tax point of view, if she just lets you carry on living there as before, and leaves you the house in her will. If the transfer of ownership takes place by inheritance, there will be no CGT to pay, IHT would be paid *instead*. The advisability of this depends, of course, on how large the rest of her estate would be likely to be.
There is another complication, though. What if you wanted to move before you inherit?
I'm not sure about stamp duty. I think it only applies on sales (transfers where consideration is paid) and not on transfers by way of gift or inheritance.
Join the Discussion
Have something to add? Share your thoughts — no account required.
Didn't find your answer?
Ask the community — no account required
Report Content
You are reporting this content to the moderators. They will look at it
ASAP.