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Sam
Sam, Accountant
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My mother transferred her property to me in December 2008 under

Customer Question

My mother transferred her property to me in December 2008 under a deed of trust, where the property is held by the trustee (me) on trust for the beneficiary (my mother) for life.
My mother's health is deteriorating and we have jointly decided it would be best to move her into supported living accommodation. We have identified likely accommodation at around the £125,000 mark. My mother's property is currently valued at around £340,000. I am a higher rate taxpayer.
Can you advise on the CGT burden I face on sale of the property my mother is occupying - as I understand it PET does not apply (>7 years since gift) but should CGT apply on the market value at time of gift, on the sale price of the property, on the difference between the two, or on any of the above minus the cost to rehome my mother?
Submitted: 1 year ago.
Category: Tax
Expert:  Sam replied 1 year ago.
Hi Thanks for your question You are mixing up the rules between Inheritance tax and Capital Gains tax. From the moment this property was transferred into your name via the trust you incurred a capital gain consideration at any future sale date, as the property was in your name via the trust and I assume that the trust charged your mother rents? This would have been required to avoid pre owned asset tax, as she continued to make use of a property that she had transferred out of her possession.The gain will be calculated on sale value less the value at the time it was placed in trust. (You do not get anything for costs to rehome your mother I am afraid) Then we have the Inheritance tax position and as less than 7 years have lapsed - then should she have passed away then Inheritance tax would be due, but it is a question of whether its a Potentially exempt transfer, but I feel this remains a gift with reservation (so continues to fully form part of her estate for Inheritance tax purposes. I would urge you to take legal advsie to manage these changes as I fear placing this property is trust was not the best move short or long term and has complicated matters far more than just letting your mother live there as her main residence until such time that she was no longer able to live independently.I suspect the reason may have been an attempt to avoid care home fees, which this may have failed to do anyway - but this is why you need a legal hand to unfold this position correctly to reduce costs as much as possible Thanks Sam
Sam, Accountant
Category: Tax
Satisfied Customers: 13778
Experience: 26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Customer: replied 1 year ago.
The transfer happened just over 7 years ago - in December 2008, so does IHT still apply? My mother did not pay rent to the trust/trustee, but the deed of trust does specify that she was obliged to keep it in a good state of repair, insured, etc. tI am trying to minimise my tax burden but primarily I am attempting to understand how much free capital I have at my disposal when seeking an alternative property for my mother.If CGT in this case is due on the difference between market value at point of transfer and today's market value, and when my mother does finally pass away I sell the supported living property, presumably I will be liable to pay CGT on increase in value that property as well?You are correct in that the trust was drawn up on advice from a legal company in order to minimise exposure to Care home fees - we were advised that it was not a totally air-tight option, but that the test cases that had been heard at that point found against the council. As we had reasonably confidence that my mother would survive longer than 7 years from the point of transfer, it was also seen as an opportunity to take the CGT hit rather than IHT.
Expert:  Sam replied 1 year ago.
Hi Thanks for your response I am afraid your mother should have paid market value rent to the trust - as it renders it invalid as this has not been the case, hence the real need to seek legal advsie to unravel this position.Its not enough that she maintained the property to have this treated as rent in retrospect. You advised that the property had been transferred to you via trust - with Mum having a lifelong right to remin living in the property - so its not in your name at all - but is owned by the trust - and therefore as its been more than 7 years AND the plan is to then purchase a smaller property for Mum - then IF the trust was in her name (until such time she passed away) then selling this larger property to purchase a smaller property just note that the trust would still own the new property and capital gains could arise on the trusts sale of the larger property of the value has increased from the time time that the property was placed in the trust to the date of sale.But there then is the option of hold over relief and I have added a link here for your informationhttps://www.gov.uk/trusts-taxes/trusts-and-capital-gains-tax But you must seek legal advsie to make sure this is handles as efficiently (and obviously correctly) as Mum has paid no rents to the trust - Thanks Sam
Customer: replied 1 year ago.
My mum is the sole beneficiary of the trust until her death. The notion of paying CGT on the difference between the value at transfer and sale of the larger property I am fine with. I will take legal advice regarding the rent issue - we were not advised of this requirement at the time the trust was drawn up. Many thanks for your help.
Expert:  Sam replied 1 year ago.
HI You are very welcome and it would be very much appreciated, if you would take the time out to rate me for the level of service I have provided. (This ensures Just Answer credit me for my time) Have a great weekend Thanks Sam

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