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bigduckontax
bigduckontax, Accountant
Category: Tax
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, I currently own 50% of a house, with a partner, and

Customer Question

Hi,
I currently own 50% of a house, with a partner, and a mortgage. Property value about £180k, and this is my private residence.
My mother wants to gift her unencumbered property to me at no interest, so that I own in wholly and she doesn't have to worry about things as she gets older. She would continue to live at the property, rent free and I would just be the person on the title.
I don't know much about capital gains or if I have to declare etc. Help?
Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.

Hello, I'm Keith and happy to help you with your question.

Your mother's gift to you of her property is outside the scope of UK taxation. However, it does create a Potentially Exempt Transfer (PET) in her Inheritance Tax (IHT) computation. PETs run off at a taper over seven years and in the event of a demise within that time are added back to the deceased's estate for IHT and are the first to bear the tax if the estate exceeds 325K plus charitable or some other bequests. If the estate is inadequate to meet the tax on the PET it cacades down to the beneficiary for immediate payment. Your mother can inherit any unused 325K from her spouse's estate making a theoretical maximum of 650K. However, if she gifts it to you and continues to reside, then this constitutes a gift with reservation and the seven year rule does not commence until she vacates.

On the ultimate sale of the property by you, you would be liable to Capital Gains Tax on the gain made between a market valuation at the date of gift and the net selling price. You have an Annual Exempt Amount of 11K [14/15 tax year] to offset this gain and any surplus over that would be taxed at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale.

I do hope I have helped you with your query. There are no tax implications on gift, but there are on decease and also sale at a later, indeterminate date.

Customer: replied 2 years ago.

Thank you.

Just for clarity (as this is fairly new to me)

My mothers house is probably worth £200k in the current market (she purchased for 170k 12 years ago) - and I am fairly confident that any demise in the next 7 years in unlikely.

From a tax calculation perspective - if I come to sell the property either pre demise (perhaps with a necessity to move to a property that is more suitable for her needs) or post demise would I be looking at 18 or 28% capital gains?

My personal income is circa £25k a year pre tax.

Thank you

Expert:  bigduckontax replied 2 years ago.

Yes, but rmember that the seven year rule does not kick in until she vacates, it is an inherent IHT risk. However, if on death, her estate does not exceed 325K there is no IHT anyway.

The CGT on sale is based on your income in the year of sale including the gain. Add 10K, your pesonal allowance, to your income and this gives you a base. Take your income plus the gain and deduct the base. CGT is applied at 18% for the 25K to the base figure and 28% thereafter.

For example income say 20K + 10K = 30K. 2 K of this has been used so 10K of the gain will be taxed at 18%, the balance at 28%.

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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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