How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 5457
Type Your Tax Question Here...
bigduckontax is online now

My husband and I live in a house that is in my grandmother's

This answer was rated:

My husband and I live in a house that is in my grandmother's name. The house was bought on the right to buy scheme back in 96 and my Dad funded it. He and my Gran came to an understanding.Grandma is going to sign the house over to me. My question is on the options for doing this. I've looked into it a little and believe she can sign it over as a gift but that if she were to pass (God forbid) within 7 years the house would still be counted as part of her estate etc. Is there any way to back date the gift? We have been living as some occupiers of the house for the last 3 years if that helps.Alternatively is there a different/better way to do it? (Such as buying the house from her for a nominal rate etc).

Hello, I am one of the experts on Just Answer and pleased to be bale to help you with your question.

I see that you have grasped the principles of the Potentially Exempt Transfer (PET). Where does your Grandmother live?

Customer: replied 6 months ago.
She lives elsewhere with her husband.

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?

Customer: replied 6 months ago.
they live in a different house which is their sole domestic residence. My Gran hasn't lived here since she married nearly 7 years ago.
Customer: replied 6 months ago.
We have lived here as sole occupiers, our names on the council tax and all amenities etc since Aug 2014)

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.

Customer: replied 6 months ago.
Sorry I just want to make sure I am understanding... she will be charged CGT only on the increase gained in the years she wasn't living here?And could you explain PET / PERT etc a bit more?

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.

Customer: replied 6 months ago.
Okay thank you I was aware of the IHT part etc so that's fine.The CGT worries me a little. The house was bought in 96 for only £30,000 and has now been roughly valued at ~£300,000. She moved out in... roughly 2011?

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%.

Customer: replied 6 months ago.
Okay thank you for all that.I have just remembered that technically the house my Gran and her husband are living in does not belong to either of them (it belongs to her husbands daughter). Does that make a difference, or is it only important that that is their main home?Also, just to double check - is the initial sum taken as the value of the house when it was bought or the amount paid?Thanks again

Do you pay your Gran rent?

Customer: replied 6 months ago.
We have been slowly renovating the house.

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!

Please be so kind as to rate me before you leave the Just Answer site.

bigduckontax and other Tax Specialists are ready to help you
Customer: replied 6 months ago.
Awesome thanks for being so patient.

Delighted to have been of assistance.

Thank you for your support.

And your kind bonus.