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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15950
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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It is a UK tax question, we live in a council house and

Resolved Question:

It is a UK tax question, we live in a council house and qualify for the max discount (£80k) if we buy the house. My mother is elderly in her 80's, she would like to sell her house and move in with us. To accommodate this my mother would sell her house and we would all buy our council house, then build an extension for my mother to live in, namely, a council house. The end result would be the prime residence for all of us, we would have all contributed to the purchase financially. We are concerned as to if there are tax liabilities, is there any. We have had draft plans drawn up to ensure that the annex will be part of the existing house.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Let me take a look at this and I'll get back to you.
Customer: replied 1 year ago.
Ok
Expert:  TonyTax replied 1 year ago.
Can you confirm that you will all have your name son the property deeds and that ownership will be divided accordingly?
Customer: replied 1 year ago.
Yes my mother, me(the son) and my wife will all be on the title deeds, and the propery will divided but at this stage I do not know the amount of ownership each will have, we are at the early stage of this process
Expert:  TonyTax replied 1 year ago.
OK, thanks. If an individual gives away an asset free of encumbrance, it is a potentially exempt transfer for Inheritance Tax purposes and will fall out of that individual's estate after seven years, thereby escaping IHT. If there is a reservation of benefit, the classic case being a parent giving away their home to a child but continuing to live there, the gift is ineffective for IHT purposes unless a full market rent is paid or the parent moves out at some point. Read about GWRs here: http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm04071.htm and here: http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm04072.htm If your mother was to gift you the cash from the sale of her home but she came to live with you, there could be a Pre-Owned Asset Tax Charge which you can read about here: http://www.which.co.uk/money/tax/guides/inheritance-tax-explained/gifts-with-strings-attached/ This can be avoided by the payment of rent or your mother having an interest in the ownership of the property you wish to buy from the council in proportion to her investment as opposed to simply gifting the cash from the sale of her own home. There may need to be a "rent" paid if the annex is worth more than the money your mother contributes but if it is part of a single property, this may not be so much of an issue. I hope this helps but let me know if you have nay further questions.
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