Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.
may I ask if your mother had a right to live in the property exclusively for the rest of her life please?
Yes my mother has the write to live in the property for the rest of her life but prefers at the present time to live with my sister in Cornwall
Thanks. Is there a formal document that confirms this such as a trust deed?
I will be logging off shortly. Would you like to continue now? Alternatively we can continue later or tomorrow if this is more convenient?
The Land Registry has myself and my mother on the title deeds as joint tenants their are no other document or trusts. I could forward you a scanned copy if you so wish.
Sorry for the delay in reverting to you. Thank you for the above. Could you tell me what evidence if any you have that it was agreed that your mother could live in the property for the rest of her life? There may not be any such evidence.
I live in Oxford with my family so have no need for the property myself which has become a bit of a liability. My mother has been living there since 1987 until recently and can return at any time if she so wish but due to her age needs the support of my sister.
Not sure why this point is so important remember it me who wishes to come off the deeds to try and avoid playing Capital Gains Tax if I/we decide to sell it at a later date or after she passes away.
Thank you. The reason for my questions was that if there was a life interest trust in place if the life interest trust continued until your mother passed away then it would be possible to potentially avoid any capital gains tax. Accordingly if a life interest trust was agreed all be it verbally it could be worth considering a declaration of a life interest trust in your mothers favour with you named as the beneficiary after your mothers death. If the property is retained under a life interest trust in your mothers favour until your mothers passing then you take the property at the value as at your mothers passing and could then sell the property CGT free.
Alternatively if you were to decide simply to gift your share of the property to your mother then this would be treated as a disposal at market value by HMRC and would be taxed as if you had sold your share to your mother at market value. Accordingly this is unlikely to be of benefit as it will give rise to an immediate CGT payment from you.
Gifts of property between connected persons (other than spouses) are treated by the revenue as disposals at market value irrespective of no money changing hands.
Accordingly the most beneficial approach is likely to be seeing a solicitor in order to seek to declare a formal life interest trust for the property for your mother. The property could then be retained (and if your mother wished rented out) and upon your mothers death you would acquire the property at the then market value for CGT purposes and if you then sold you would only pay CGT on the difference between the market value at your mothers passing and the amount you sold it for which presumably would be virtually nothing
Does the above answer all your questions or is there anything I can clarify or help with any further?
Joshua it sounds very promising.
I went in with my mother to buy the property in 1987 under the belief that I would not be liable for CGT due to her being a dependent relative but unfortunately the government at the time changed removed this clause a few week before completion (yes just a few weeks).
If we go ahead with this trust could my mother sell in before she passes away and would you act as solicitor or could provide some useful names.
Also does it matter if this trust is opened up now rather than 26 years ago. is it time relative?
The relief as to CGT only applies when a life interest trust comes to an end on death. It would not apply if the property were sold prior to her passing. If it were desirous for the property to be sold prior to her passing, then there would be no CGT on her share of the property (50%) if she has lived there as her primary residence but there would be a CGT charge on the other 50% of the property so this may or may not be desirable.
In terms of the trust a trust can be declared at any point and if there was a genuine agreement that your mother was to have a use of the property for life then you can declare a trust to have existed for all this time. The Revenue can challenge trust arrangements that it considers fake but if you can genuinely show that your mother has had free use of the property for all this time then the trust in principle can stand up.
Is there anything else I can help you with?
One last question (maybe more) does it matter that she is not living there now. The property is currently vacant.
Also if she rents the property out does it matter who receives the rent?
No providing she still has the ability to return there and if the property is rented out that she receives full income. The important point if you are going to claim a life trust is that only your mother derived benefit from the property during her life. This would be the right to live there or derive income from the property if rented
I assume CGT will operate for both of us from the time she left or rents the place out?
If she lives somewhere else but doesn't own another property PPR relief will still apply to her share. If she rents out then you are correct PPR relief will not apply for that period of her ownership though there are reliefs available which can offset the gain for that period - namely private lettings relief
Are you happy with the information I have provided to you above or is there anything above I can clarify for you any further?
If you have no further questions for now I should be very grateful if you would kindly take a moment to rate my service to you today. Your feedback is important to me. If there is anything else I can help with though please reply back to me though.
I have to go now but their are probable a few more questions if you don`t mind I also wish to summarize a course of actions based on your advise.
In the meantime I will get write on to seeking a solicitor to draw up a trust agreement.
Certainly. If you have no questions for now I should be very grateful if you would kindly rate my service to you to date. This will also save the thread to your account and you can return to it later if you have any further questions. I am around all day
Someone pointed out the following which maybe a problem Interesting idea but I’m not sure it works due to legislation called Reversion to Settlor s73 TCGA(92) where the cost of property put into trust comes out of the trust at the same costs and thus CGT would be due on the uplift when sold.
Can you see anyway around this?
You are quite right that the above holds a potential trap. Careful drafting of the trust declaration is required. It is possible to benefit from CGT uplift providing your mothers life interest reverts to you on a life interest with power to advance capital. In other words so that rather than your acquiring the property absolutely (which would mean you take the property for CGT at base cost giving you a large gain to deal with when you sell), you acquire a life interest of your own to the property with the trustees having the power to avoid capital.
This arrangement means that the value of the property at your mothers death will be included in her estate for IHT purposes and you will acquire a life interest to the property with CGT uplift in base cost to the current market value with a power then to advance capital to you afterwards so that you acquire the property absolutely.
A solicitor will in practice be able to include the relevant provisions in a declaration of trust