Buying My Mothers House

UPDATE - I mean buying it for 70K half the market value.

The Question is could I buy my mothers house for £75K, my mother would

then give my sister the money as a gift. My Mother would then live in the house rent-free. Is this legal and what are the Tax implications? The whole family is agreement with this plan and as I am in the military do not need any housing myself till 2014.

Watch out for capital gains tax when the house is eventually sold. You have owned it but it was not your residence, so not PRR relief.

Another thought: you say "should anything happen to my mother my sister and I would inherit the full property. But you don't know that. You mother could change her will at any time or some creditor (or local authority) might take her money off her to pay for care for example.

Take care also with you otther making gifts involving the house when she continues to live in it. She needs to be sure that the gift really will be accepted as such for inheritance tax - if she gave the house, for example, but continued to live in it then the house would still be in her estate for IHT. Gifts of money, for example, fall out of the IHT net if the giver survives for 7 years.

the rules for CGT and IHT are different. You can be taxed twice if you aren't careful.

Robert

thanks robert for the reply, the thing is Im not planning on giving my mother 70k, I would Buy the house for that amount and the deeds would be put in my name. I then plan to live in the house in 2014 upon leaving the military. My mothers estate with the house is about 170K I thought the limit on IHT was 200 odd K. To tell the truth im a bit lost in all this legal/Tax jargon am going to see a lawyer about it just thought I would get some info first. Any advice would be helpfull Thanks peter

I'm afraid I'm confused about what you are going to be doing. I think you mean that:

The house is worth £140k. You and your sister own 35% of it (or £49,000 worth) between you. Your mother owns the remaining 65% (or £91,000 worth).

You want to buy your mother's £91,000 share for £70,000. Part of that £70,000 will go to your sister to buy her share of the house, and your mother will gift the remainder of the £70,000 to your sister.

Your mother will then live in the house rent free until 2014, at which point you'll move in. You will then buy her another house.

If I haven't misunderstood your plan, then it is certainly _legal_ to do that. However, a (non exhaustive) list of some of your problems might be:

Everything Robert said ^^^.

The gift to your sister might be subject to IHT if your mother does not survive seven years, but as you say her estate is below the threshold this is unlikely to be an issue.

Your mother has effectively given you more than £21,000 in 'house' rather than in 'cash' (the difference between the value of her share of the house and the amount you paid her for it). The amount may be larger than £21,000, as it seems that your sister's share of the house is being purchased with the £70k that you are transferring to your mother. However, since your mother will continue to live in the house, she will have made a "gift with reservation", which comes with tax consequences. I'll leave it to those more qualified to tell you what they might be!

If your mother needs care, or means tested benefits in general, the local authority/benefits agency might consider that she had deliberately got rid of her assets in order to avoid paying for that care. Again I'll leave it to people more qualified to tell you what the consequences might be there, but it would definitely cause hassle.

What happens if your mother wants to move / you want to sell the house? As you won't have lived in it, you won't get primary residence relief and you might be liable for CGT. If you want to sell but your mother doesn't want to move, you might have a costly battle. (Costly both in terms of finances and in terms of family relationships).

What happens to the house if you predecease your mother? (OK, so children ususally outlive their parents, but you need to think about it). Your mother's estate may be below the IHT threshold, but if the house is part of *your* estate then IHT may still be charged.

What happens if you become bankrupt/ need to sell the house for some reason?

What happens if you can't buy an appropriate house in 2014?

Have you thought of other (possibly easier and more tax efficient) ways of doing whatever it is you want to do? It's difficult to make sensible comments without knowing why you are considering the transaction - is it intended to give your mother access to capital now, to help your sister out by giving her cash now, to help you get a foot on the property ladder, or for some other reason?

Laura.

In message , " snipped-for-privacy@yahoo.co.uk" writes

Could the fact that he is in the Military allow him to nominate the house as his main residence, even if he doesnt live in it... or does that fact that the military provide accommodation forego this?

"Could the fact that he is in the Military allow him to nominate the house as his main residence, even if he doesnt live in it... or does that fact that the military provide accommodation forego this?"

I hadn't thought of that, but I think you might be right (depending on his actual living arrangements).

Thanks for all the advice guys and girls - The situation is basically that my sister needs the cash because of her in-laws passing away in the USA and the huge cost of medical bills out there, she has had to sell her house already to cover the cost and is still heavily in debt.

My mother would like to release some of the equity in the house to help my sister out but if she gives my sister cash she also wants to give me the same amount as she believes that it is our Inheritance.

She is a fit old woman now, but is also worried that if she has to go into a care home we will lose our inheritance.

I'm just trying to find a solution that would help us all out.

Would this work?

I buy the house for £115K, which is full value minus 17-½ % (My Share)

My mother the gives my sister £46K as a gift.

Because she has given my sister a gift could she give me the same amount in the tax mans eyes?

or could she pay me 7 years advance rent at market value say £500 per month this works out at £42K.

Would this cover all the angles or is there a better way?

Many Thanks for all the help so far.

Peter