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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15707
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I'm looking on the fact my parents and I

Customer Question

Hi,
I'm looking for advice on the fact my parents and I and my wife share a family home with them. When we bought it my mum and dad provided 90k pounds towards the deposit but I have been paying the mortgage interest of 750k and the house is not worth 1.5m . Currently given the terms of the tenancy we own 25 percent each however this seems incredibly unfair as I have been servicing the mortgage for the last 10 years and my parents have also signed papers to agree their ownership should only be proportional to their original contribution so around 10 percent. We are changing the terms of tenancy to reflect this but I wanted some tax advice whether UK HMRC tax dept would also appreciate this when it comes to inheritance tax in that my parents only own 10 percent?
Submitted: 7 months ago.
Category: Tax
Expert:  TonyTax replied 7 months ago.
Hi. There should be no Capital Gains Tax liability for your parents if they gift most of their share of the property to you as it would appear that it is their main home as well as yours. There should be no problem with HMRC so long as everything is documented. If it is already documented that your parents each own 25% of the property, then any reduction in their shares and a corresponding increase in yours will be treated as a gift to you and your wife but will remain as part of their respective estates for Inheritance Tax purposes for seven years. After three years, the potential IHT liability will taper away as you will see if you look here. You could take out a term assurance policy with reducing life cover to protect against an IHT liability. The cost of that will depend on your parents' ages. Each of your parents has a nil-rate IHT band of £325,000 so whether there will be any IHT on their passing will depend on what other assets they have. You might also be interested in the notes here on the new IHT family allowance. I hope this helps but let me know if you have any further questions.
Customer: replied 7 months ago.
Thanks - my issue is that I have contributed thousands of pounds to enhance this property, am paying the full mortgage and it seems higher unfair that my parents should have the benefit of joint ownership have contributed very little. If we are willing to change the apportionment it seems very strange that HMRC would view this as a gift given in reality they never payed for it - how do I reconcile this - this is also preventing me from paying off my mortgage as this would increase my parents assets further and also my inheritance tax liability?!
Expert:  TonyTax replied 7 months ago.
Can you tell me why the property ended up in joint names?
Customer: replied 7 months ago.
When my father and mother sold their house (which I was also paying the mortgage for as my dad was made redundant / retired ) we didn't really consider the future and bought a house in my,my wife and mum and dad's name - the mortgage was largely given on my basis as my dad was retired but we used 90k from the proceeds of the previous house towards the deposit. If I had known better about the potential inheritance tax implication I certainly wouldn't have done it this way!
Expert:  TonyTax replied 7 months ago.
The only way that you might be able to discount a transfer back to you and your wife is to have your parents sign an agreement which states that they have never had any interest in the capital growth of the property and that they merely wished to protect their investment, notwithstanding the fact that you would be drawing up such a document 10 years later. The point is that the gift back to you won't come to light until your parents die and only then if their executors report it as such. Whether HMRC would accept that position should it come to light is impossible to say but you have nothing to lose by having an agreement in place.
Customer: replied 7 months ago.
Ok thank you - the only other option I can think on this is either to sell the property (which given it's our home I don't want to do) or I maximise my borrowing against this property and when they pass away I pay off the mortgage?
Expert:  TonyTax replied 7 months ago.
I'm not allowed to give you financial advice I'm afraid. The mortgage is secondary to the fact that your parents are on the title deeds but if they have stipulated in writing that they understood from day one that their interest should not be more than what they originally put in (you might call it a loan) it would be difficult for HMRC to prove otherwise.
Customer: replied 7 months ago.
Thank you - I think that is the right approach - would you be able to advise what the wording might be of this declaration and for HMRC to accept this does this need to be written with a solicitor or can we write it and get an independent person to witness?
Expert:  TonyTax replied 7 months ago.
I wouldn't be happy at providing wording if it were me. Instead, I would explain the situation to a solicitor and have them do it for you. You and your parents would sign the document and it would be witnessed. It doesn't have to be drawn up by a solicitor but that would be the way to it in my opinion.
Expert:  TonyTax replied 7 months ago.
Hi.I'm just following up to find out if my answer helped or if you have any further questions.

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