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I see that you have grasped the principles of the Potentially Exempt Transfer (PET). Where does your Grandmother live?
Do they own the house they live in or do they rent? What I am getting at is this house their sole or main domestic residence?
If and when your gran disposes of the house either by gift or sale she will be subject to Capital Gains Tax (CGT) on any profit made. This will be levied at 18% or 28% or a combination of the two rates depending on her income including the gain in the tax year of sale.
Her ownership time is say 312 months. Her occupation time is 102 months, for the last 18 months of ownership she is deemed to be in residence and Private Residence Relief (PRR) is extended. 312 - 102 = 210 so only say 33% of the gain will be exposed to tax less her non cumulative Annusl Exempt Amount, currently 11.3K.
The gift will still create a PET which runs off at a taper over 7 years and in the event of her decease within that time will be added back to her estate for Inheritance Tax (IHT) purposes. If her estate is insufficient to meet the tax on the PERT, which is the first to suffer IHT, the liability cascades down to the beneficiary for immediate settlement.
I do hope that you have found my reply of assistance.
No not quite; she will be liable to CGT on the whole gain, but only the proportion reflecting the time she was not living there, the 33%.
PERT is wrong, my error should read PET. PET is a liability attached to gifts which can have consequences for the beneficiary as I explained. IHT does not, however, kick in, until assets on death exceed 325K.
Gain is 300K - 30K = 270K so after AEA (258.7K) at 33% CGT liability on a tad over 85K, A worst case scenario would be a tax bill of say 24K, but might well be less depending on the proportion taxed at 18%.
Do you pay your Gran rent?
Then it her sole or main domestic residence so PRR will apply for the whole of her ownership and there will be no CGT payable. HMRC love to interpret the law as 'sole and main' and the Inland Revenue tried this on in the mid 70s when they attempted to designate service personnel'q married quarters as their 'sole and main' and emerged with considerable egg on their face. A Defence Council Instruction they had persuaded the MOD to issue had to be hurriedly cancelled. I know, I arrived in Nepal to find the camp in uproar over it and a quick letter put the Revenue back in its box! I was not popular!
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