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Finances / Finanzen » uk.finance » House sale to finance extension of daughter's property
| House sale to finance extension of daughter's property [message #390637] |
So, 28 Mai 2006 12:20 |
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Mrs X is a pensioner living alone in her own home, on which there is no
mortgage. She has accepted an offer to move in with her daughter and
son in law, Mr & Mrs Y. Mr & Mrs Y's home will need to be extended to
accommodate Mrs X. The extension is to be paid for from the proceeds of
the sale of Mrs X's house. There may also be some money left over from
Mrs X's house sale after Mr & Mrs Y's house has been extended.
What are the tax implications of this arrangement?
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| Re: House sale to finance extension of daughter's property [message #390638 ] |
So, 28 Mai 2006 12:49 |
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Dave Gill wrote:
> Mrs X is a pensioner living alone in her own home, on which there is no
> mortgage. She has accepted an offer to move in with her daughter and
> son in law, Mr & Mrs Y. Mr & Mrs Y's home will need to be extended to
> accommodate Mrs X. The extension is to be paid for from the proceeds of
> the sale of Mrs X's house. There may also be some money left over from
> Mrs X's house sale after Mr & Mrs Y's house has been extended.
>
> What are the tax implications of this arrangement?
Mrs X is (presumably) making a gift to Mr & Mrs Y of the extension/cost
of the extension (amounts to the same thing). In the absence of other
gifts, that will sit at the bottom of the IHT calculation, and insofar
as it is below the IHT threshold, will take a full 7 years to
disappear.
There is no "reservation" on the gift if they all live together and all
contribute to the running costs. There can be no CGT implications as
all properties are PPRs - Principal Private Residences.
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| Re: House sale to finance extension of daughter's property [message #390641 ] |
So, 28 Mai 2006 13:05 |
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In article <1148813369.208801.110050 [at] i39g2000cwa.googlegroups.com>,
"Troy Steadman" <troysteadman [at] yahoo.co.uk> wrote:
> Mrs X is (presumably) making a gift to Mr & Mrs Y of the extension/cost
> of the extension (amounts to the same thing). In the absence of other
> gifts, that will sit at the bottom of the IHT calculation, and insofar
> as it is below the IHT threshold, will take a full 7 years to
> disappear.
>
> There is no "reservation" on the gift if they all live together and all
> contribute to the running costs. There can be no CGT implications as
> all properties are PPRs - Principal Private Residences.
Thanks for that.
Obviously Mrs X wants to maximise her daughter's inheritance, so what's
the best way to deal with any money left over? Should that be gifted
along with the extension (in lieu of future running costs) or should it
be kept back by Mrs X to put towards running costs as they arise?
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| Re: House sale to finance extension of daughter's property [message #390642 ] |
So, 28 Mai 2006 13:22 |
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Troy Steadman wrote:
> Dave Gill wrote:
>> Mrs X is a pensioner living alone in her own home, on which there is no
>> mortgage. She has accepted an offer to move in with her daughter and
>> son in law, Mr & Mrs Y. Mr & Mrs Y's home will need to be extended to
>> accommodate Mrs X. The extension is to be paid for from the proceeds of
>> the sale of Mrs X's house. There may also be some money left over from
>> Mrs X's house sale after Mr & Mrs Y's house has been extended.
>>
>> What are the tax implications of this arrangement?
>
> Mrs X is (presumably) making a gift to Mr & Mrs Y of the extension/cost
> of the extension (amounts to the same thing). In the absence of other
> gifts, that will sit at the bottom of the IHT calculation, and insofar
> as it is below the IHT threshold, will take a full 7 years to
> disappear.
>
> There is no "reservation" on the gift if they all live together and all
> contribute to the running costs. There can be no CGT implications as
> all properties are PPRs - Principal Private Residences.
There's another way of looking at it. It's conceivable that the "extension"
is really what is more commonly referred to as a "granny flat" and so does
not form part of the Y household.
The wording "there may be some money left over" suggests that there might
not, or might not be much. I would have thought that extending a house to
create just one additional bedroom, and perhaps an ensuite bathroom to go
with it, would cost relatively little, likely not enough to gobble up the
lion's share of the sale proceeds of a whole house or flat. This leads me
to suspect that the extension is likely to be more substantial, creating a
self-contained flat under the same roof, with its own kitchen, sitting room,
etc. It could in principle form a completely separate property, in effect
turning Y's presumably detached house into a semi-detached property of
which the granny flat would form the other half and could be wholly owned
by Mrs X.
In such a case there need not be any gift as such at all, though Mrs X
might be minded to leave her semi to the Ys in her will.
Although the wording "to move in with" perhaps contradicts this, there
is no reason, even if there are not two separate households, why Mrs X
could not end up co-owning the new combined property, perhaps in such
proportion as the difference in before and after values bears to the new
combined value.
The danger, if the properties really are separate, is that if she gifts
her half, then there *would* be reservation, and the granny flat would not
be part of the Y's PPR, so *both* IHT and CGT might apply.
From this point of view it is important that even if the granny flat has
its own "front" (external) door and is largely self-contained, there should
be some internal connection (even if this is a door normally kept locked)
which would allow the combined property to be reasonably classified as one
household.
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| Re: House sale to finance extension of daughter's property [message #390644 ] |
So, 28 Mai 2006 13:33 |
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In article <MJfeg.77034$wl.71797 [at] text.news.blueyonder.co.uk>,
Ronald Raygun <no.spam [at] localhost.localdomain> wrote:
> There's another way of looking at it. It's conceivable that the "extension"
> is really what is more commonly referred to as a "granny flat" and so does
> not form part of the Y household.
>
> The wording "there may be some money left over" suggests that there might
> not, or might not be much. I would have thought that extending a house to
> create just one additional bedroom, and perhaps an ensuite bathroom to go
> with it, would cost relatively little, likely not enough to gobble up the
> lion's share of the sale proceeds of a whole house or flat. This leads me
> to suspect that the extension is likely to be more substantial, creating a
> self-contained flat under the same roof, with its own kitchen, sitting room,
> etc. It could in principle form a completely separate property, in effect
> turning Y's presumably detached house into a semi-detached property of
> which the granny flat would form the other half and could be wholly owned
> by Mrs X.
>
> In such a case there need not be any gift as such at all, though Mrs X
> might be minded to leave her semi to the Ys in her will.
The extension work (a large bedroom over the garage and a family room at
the rear) will be integral with Mr & Mrs Y's home.
Other home improvements will be carried out at the same time (replacing
the existing double-glazing, central heating and kitchen etc.).
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| Re: House sale to finance extension of daughter's property [message #390650 ] |
So, 28 Mai 2006 17:14 |
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Dave Gill wrote:
> In article <1148813369.208801.110050 [at] i39g2000cwa.googlegroups.com>,
> "Troy Steadman" <troysteadman [at] yahoo.co.uk> wrote:
>
> > Mrs X is (presumably) making a gift to Mr & Mrs Y of the extension/cost
> > of the extension (amounts to the same thing). In the absence of other
> > gifts, that will sit at the bottom of the IHT calculation, and insofar
> > as it is below the IHT threshold, will take a full 7 years to
> > disappear.
> >
> > There is no "reservation" on the gift if they all live together and all
> > contribute to the running costs. There can be no CGT implications as
> > all properties are PPRs - Principal Private Residences.
>
> Thanks for that.
>
> Obviously Mrs X wants to maximise her daughter's inheritance, so what's
> the best way to deal with any money left over? Should that be gifted
> along with the extension (in lieu of future running costs) or should it
> be kept back by Mrs X to put towards running costs as they arise?
It has to be the latter, otherwise the whole thing falls apart. There
no other children?
There are oodles of things to consider, and as Ronald has suggested,
adding Mrs X on to the deeds is an obvious - and IHT saving - option.
It all depends on where you want to end up.
Mrs X will (maybe) have to prove in front of a Psycho-Geriatrician
(posh word for someone who charges =A3180 per 1/4 hour) that she is
capable of these decisions before any solicitor will touch this. Mrs X
is selling her house and effectively giving the money to you, so she
needs to understand what she is doing.
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| Re: House sale to finance extension of daughter's property [message #390654 ] |
So, 28 Mai 2006 18:55 |
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In article <1148829281.827969.66740 [at] y43g2000cwc.googlegroups.com>,
"Troy Steadman" <troysteadman [at] yahoo.co.uk> wrote:
> It has to be the latter, otherwise the whole thing falls apart. There
> no other children?
The daughter is Mrs X's only child.
> There are oodles of things to consider, and as Ronald has suggested,
> adding Mrs X on to the deeds is an obvious - and IHT saving - option.
> It all depends on where you want to end up.
How would that affect Mr & Mrs Y's mortgage, and what would the
implications be if, at some time in the future, Mrs X needed residential
care? Would it then be a case of selling the property to finance the
treatment (as it would be if Mrs X still lived alone)?
> Mrs X will (maybe) have to prove in front of a Psycho-Geriatrician
> (posh word for someone who charges £180 per 1/4 hour) that she is
> capable of these decisions before any solicitor will touch this. Mrs X
> is selling her house and effectively giving the money to you, so she
> needs to understand what she is doing.
Mrs X is planning to sell her house, no-one has objected and no-one has
questioned her metal faculties, so that doesn't appear to be an issue.
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The From address is a spam-trap, so all replies to the newsgroup please.
~~~~~~~~~~~~~~~ Be Alert, Your Country Needs More Lerts! ~~~~~~~~~~~~~~~
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| Re: House sale to finance extension of daughter's property [message #390655 ] |
So, 28 Mai 2006 19:06 |
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Dave Gill wrote:
> In article <1148829281.827969.66740 [at] y43g2000cwc.googlegroups.com>,
> "Troy Steadman" <troysteadman [at] yahoo.co.uk> wrote:
>
>> It has to be the latter, otherwise the whole thing falls apart. There
>> no other children?
>
> The daughter is Mrs X's only child.
>
>> There are oodles of things to consider, and as Ronald has suggested,
>> adding Mrs X on to the deeds is an obvious - and IHT saving - option.
>> It all depends on where you want to end up.
>
> How would that affect Mr & Mrs Y's mortgage,
Mrs X would have to become party to the mortgage. The lender might not
be particularly happy.
But I did not suggest adding her to the deeds, merely to make her a
co-owner (i.e. beneficial, not legal). This would have no bearing
on the mortgage.
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| Re: House sale to finance extension of daughter's property [message #390658 ] |
So, 28 Mai 2006 21:00 |
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In message <butidontlikespam-1A19AA.12055028052006 [at] news.gradwell.net>,
Dave Gill <butidontlikespam [at] spamlovelyspam.com> writes
>
>Thanks for that.
>
>Obviously Mrs X wants to maximise her daughter's inheritance, so what's
>the best way to deal with any money left over? Should that be gifted
>along with the extension (in lieu of future running costs) or should it
>be kept back by Mrs X to put towards running costs as they arise?
>
If we can assume she will live for 7 years then she should keep the
excess up to £285k (the threshold for IHT). IF she dies within 7 years
then the gift would be added back into the estate and would be subject
to IHT. How much will she sell her house for?
--
John Boyle
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| Re: House sale to finance extension of daughter's property [message #390659 ] |
So, 28 Mai 2006 21:06 |
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In message <MJfeg.77034$wl.71797 [at] text.news.blueyonder.co.uk>, Ronald
Raygun <no.spam [at] localhost.localdomain> writes
>The wording "there may be some money left over" suggests that there might
>not, or might not be much. I would have thought that extending a house to
>create just one additional bedroom, and perhaps an ensuite bathroom to go
>with it, would cost relatively little, likely not enough to gobble up the
>lion's share of the sale proceeds of a whole house or flat. This leads me
>to suspect that the extension is likely to be more substantial, creating a
>self-contained flat under the same roof, with its own kitchen, sitting room,
>etc. It could in principle form a completely separate property, in effect
>turning Y's presumably detached house into a semi-detached property of
>which the granny flat would form the other half and could be wholly owned
>by Mrs X.
>
>In such a case there need not be any gift as such at all, though Mrs X
>might be minded to leave her semi to the Ys in her will.
>
>Although the wording "to move in with" perhaps contradicts this, there
>is no reason, even if there are not two separate households, why Mrs X
>could not end up co-owning the new combined property, perhaps in such
>proportion as the difference in before and after values bears to the new
>combined value.
>
>The danger, if the properties really are separate, is that if she gifts
>her half, then there *would* be reservation, and the granny flat would not
>be part of the Y's PPR, so *both* IHT and CGT might apply.
>
>From this point of view it is important that even if the granny flat has
>its own "front" (external) door and is largely self-contained, there should
>be some internal connection (even if this is a door normally kept locked)
>which would allow the combined property to be reasonably classified as one
>household.
>
Ingenious (as ever) but this over complicates things and misses an
opportunity to reduce Mrs X's estate. Splitting the house will incur
legal costs and will need Y's mortgagee (if there is one) to agree and
they might need a valuer's opinion (more cost). Making X a joint owner
(even a mere equitable owner) wont help for IHT either.
--
John Boyle
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| Re: House sale to finance extension of daughter's property [message #390669 ] |
Mo, 29 Mai 2006 00:15 |
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In article <cd5Jm2AhNfeEFwJ7 [at] johnboyle1.demon.co.uk>,
John Boyle <john [at] johnboyle1.demon.co.uk> wrote:
> If we can assume she will live for 7 years then she should keep the
> excess up to £285k (the threshold for IHT). IF she dies within 7 years
> then the gift would be added back into the estate and would be subject
> to IHT. How much will she sell her house for?
Considerably less than £285k! (Around half that in fact.)
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The From address is a spam-trap, so all replies to the newsgroup please.
~~~~~~~~~~~~~~~ Be Alert, Your Country Needs More Lerts! ~~~~~~~~~~~~~~~
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| Re: House sale to finance extension of daughter's property [message #390675 ] |
Mo, 29 Mai 2006 03:38 |
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In message <butidontlikespam-D088F9.23154028052006 [at] news.gradwell.net>,
Dave Gill <butidontlikespam [at] spamlovelyspam.com> writes
>I
>> How much will she sell her house for?
>
>Considerably less than £285k! (Around half that in fact.)
>
Fair enough!
I dont think you have anything to worry about. The estate is well below
any IHT threshold and CGT doesnt appear to be relevant in the circs you
describe. Let her pay for the property extension costs as a gift to Y,
and keep the surplus for herself.
--
John Boyle
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| Re: House sale to finance extension of daughter's property [message #390688 ] |
Mo, 29 Mai 2006 13:06 |
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In article <U1yLcoIMCleEFwKn [at] johnboyle1.demon.co.uk>,
John Boyle <john [at] johnboyle1.demon.co.uk> wrote:
> In message <butidontlikespam-D088F9.23154028052006 [at] news.gradwell.net>,
> Dave Gill <butidontlikespam [at] spamlovelyspam.com> writes
> >I
> >> How much will she sell her house for?
> >
> >Considerably less than £285k! (Around half that in fact.)
> >
> Fair enough!
>
> I dont think you have anything to worry about. The estate is well below
> any IHT threshold and CGT doesnt appear to be relevant in the circs you
> describe. Let her pay for the property extension costs as a gift to Y,
> and keep the surplus for herself.
Thanks for all the contributions. I was hoping it would be fairly
straightforward, but half expecting it to get hideously complicated.
It appears that if Mrs X and Mr & Mrs Y stick to the simple plan set out
above things should be reasonably straightforward.
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