| Buying My Mothers House [message #382774] |
Mi, 19 April 2006 16:04 |
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Hi,
At present, due to my parents divorce my sister and I own 35% of my
mothers house and the mortgage will be paid for in full this July.
The value of the property is at the moment is =A3140K and should
anything happen to my mother my sister and I would inherit the full
property.
My sister lives in the USA and will not be returning to this country no
matter what happens.
The Question is could I buy my mothers house for =A375K, 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.
The plan then would be to buy another small property for my mother, as
she would then be 80
Any help on this subject would be greatly received
Many Thanks
Peter.
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| Re: Buying My Mothers House [message #382775 ] |
Mi, 19 April 2006 16:15 |
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UPDATE - I mean buying it for =A370K half the market value.
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| Re: Buying My Mothers House [message #382779 ] |
Mi, 19 April 2006 17:19 |
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The Question is could I buy my mothers house for =A375K, 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
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| Re: Buying My Mothers House [message #382781 ] |
Mi, 19 April 2006 17:44 |
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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
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| Re: Buying My Mothers House [message #382808 ] |
Do, 20 April 2006 00:15 |
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I'm afraid I'm confused about what you are going to be doing. I think
you mean that:
The house is worth =A3140k.
You and your sister own 35% of it (or =A349,000 worth) between you.
Your mother owns the remaining 65% (or =A391,000 worth).
You want to buy your mother's =A391,000 share for =A370,000. Part of
that =A370,000 will go to your sister to buy her share of the house, and
your mother will gift the remainder of the =A370,000 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 =A321,000 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 =A321,000, as it seems that your sister's share of the house
is being purchased with the =A370k 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.
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| Re: Buying My Mothers House [message #382813 ] |
Do, 20 April 2006 01:59 |
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In message <1145484913.739963.265570 [at] e56g2000cwe.googlegroups.com>,
"mauzc [at] yahoo.co.uk" <mauzc [at] yahoo.co.uk> writes
> As you won't have lived in it, you won't get primary residence relief
>and you might be liable for CGT.
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?
--
Richard Faulkner
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| Re: Buying My Mothers House [message #382821 ] |
Do, 20 April 2006 09:19 |
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"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).
http://www.hmrc.gov.uk/manuals/cg4manual/CG64555.htm suggests that the
relief may still apply.
Laura.
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| Re: Buying My Mothers House [message #382853 ] |
Do, 20 April 2006 15:34 |
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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 =A3115K, which is full value minus 17-=BD % (My
Share)
=A324K to my sister =A391K to my mother
My mother the gives my sister =A346K 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 =A3500 per
month this works out at =A342K.
Would this cover all the angles or is there a better way?
Many Thanks for all the help so far.
Peter
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