Andrew, thank you for your prompt reply.
Your mother’s estate would be worth £375,000 in the event of death.
The rules relating to passing on a home as a gift are:
(source: HMRC website on inheritance tax)
If a person passed on their home to their children (or someone else) before they died, it’s treated as a gift and the 7-year rule applies.
But if they continued to live in it rent-free, their estate has to pay Inheritance Tax on the home even if they lived for 7 years after giving it away. This is known as a ‘gift with reservation of benefit’.
It is clear from your statement that your mother has continued to live in the property rent free. Therefore the property would form part of her estate for IHT purposes.
It will pass on to the boys on death
More information on this can be found here
IF my mother should pass away and we decide to sell the house , how is the capital gain calculated. also is the property still considered as part of her estate due to her still living there and not paying rent , and if so what tax implications would this have . Also can you make any recommendations to reduce the tax burden in the future if we eventually are in the situation were we have to sell the house
Capital gains would be calculated based on probate value being the base price and not the original cost when the property was bought or value 30 years ago.
You gain would be the difference between probate value and eventual sale price.
Each one of you would claim gains allowance against your share of the gain and the balance would be taxed at CGT rate of 18%, 28% or a combination of both based on your total income in the year of sale.
If the property was made a main residence by any one of you, that brother would claim private residence relief against the gain.
Otherwise, being a second home, allgain is chargeable to capital gains tax.
I hope this is helpful and answers your question.
If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.