House ownership and tax question - any tax experts about?
Discussion
Hi all
Interesting conversation with a friend tonight. Years ago, (10 ish) he and his wife went into a tenancy in common with his mother in law, in which they jointly took out and paid a mortgage on the property she was living in. This was to avoid her moving home after a messy divorce.
MiL has since inherited and paid off the mortgage and paid back all mortgage payments to her daughter/ son in law that they assisted her with during the time between purchase and paying the mortgage.
He’s done several self assessments over that intervening time and says he always answered the question about owning another property with ‘no’ because he hasn’t ever seen it as his property.
Unfortunately MiL is currently unwell and entering end of life care. Thoughts have turned to what happens when they sell the house and do they have any tax liabilities? His wife is the sole heir to her mums estate if that matters.
Is there a tax liability such as CGT? If so, are they allowed to aggregate their allowances over that 10 year period or would it only be one years allowance and that’s that?
If it matters, he believes they equal shares (1/3 each) but can’t remember the specifics.
Before anyone says it. No it’s not me!
Interesting conversation with a friend tonight. Years ago, (10 ish) he and his wife went into a tenancy in common with his mother in law, in which they jointly took out and paid a mortgage on the property she was living in. This was to avoid her moving home after a messy divorce.
MiL has since inherited and paid off the mortgage and paid back all mortgage payments to her daughter/ son in law that they assisted her with during the time between purchase and paying the mortgage.
He’s done several self assessments over that intervening time and says he always answered the question about owning another property with ‘no’ because he hasn’t ever seen it as his property.
Unfortunately MiL is currently unwell and entering end of life care. Thoughts have turned to what happens when they sell the house and do they have any tax liabilities? His wife is the sole heir to her mums estate if that matters.
Is there a tax liability such as CGT? If so, are they allowed to aggregate their allowances over that 10 year period or would it only be one years allowance and that’s that?
If it matters, he believes they equal shares (1/3 each) but can’t remember the specifics.
Before anyone says it. No it’s not me!
One used to be able to claim relief for dependent relatives but pretty sure that was shut down in 1988. On the face of it, it appears as though CGT would be applicable. Each tennant 1/3 each for the two not residing in the property can use one years CGT allowance. £12.3k each to offset any gain. This is just an off the cuff opinion. Speak to an expert in property matters. All the best.
rxe said:
If they’re worried about what happens when mum dies, then there is no problem other than IHT - which wipes CGT out - it doesn’t matter how much “profit” your assets have made. If she is under the IHT threshold, nothing to worry about. If she is over, probably seek advice.
I think you are missing the point that the elderly relative owns just 1/3rd of the asset. The owners of the other 2/3rds are raising the issue of CGT. The OP suggests however that the MIL paid them back so I'm not sure whether the MIL has effectively purchased their share back.eltax91 said:
He’s done several self assessments over that intervening time and says he always answered the question about owning another property with ‘no’ because he hasn’t ever seen it as his property.
There's no such question on the self assessment form.It asks if you received income from a property.
AIUI, CGT will only be due when the property is sold.
So, it could be rented out for the foreseeable future?
Most of the info is on the .gov.uk website.
It seems a little unclear what % shares might be with the MiL 'paying back' some money.
CGT will basically be be due on the gain of the % not in her name.
So, it could be rented out for the foreseeable future?
Most of the info is on the .gov.uk website.
It seems a little unclear what % shares might be with the MiL 'paying back' some money.
CGT will basically be be due on the gain of the % not in her name.
Chaps
Thanks for the responses. I fired off a text to him this morning with a link to the thread. He's just replied:-
All 3 names are on the deeds
She will be well under the IHT threshold, the house is worth £250k, she has uner £20k in savings/ other assets.
The house was "purchased" from her (now ex) husband by means of an interest only mortgage to pay off remaining mortgage and give FiL a lump sum which he was happy to sell for. All 3 of us were required for the mortgage because MiL is a low earner (primary school clerk) and so the interest only mortgage was taken out as tenancy in common. We paid the mortgage jointly and kept a ledger of all money given towards mortgage.
7 years later, MiL inherited and cleared the outstanding mortgage. She also paid back all mortgage payments that were made over the 7 year period. When we entered into this, we considered we were helping out MiL to stay in the house she loved, plus also having a nice savings plan that we were committed to.
As for self assessment, you might be right, that's potentially the q i am asked.
I think that's all info that's needed for now.
Thanks for the responses. I fired off a text to him this morning with a link to the thread. He's just replied:-
All 3 names are on the deeds
She will be well under the IHT threshold, the house is worth £250k, she has uner £20k in savings/ other assets.
The house was "purchased" from her (now ex) husband by means of an interest only mortgage to pay off remaining mortgage and give FiL a lump sum which he was happy to sell for. All 3 of us were required for the mortgage because MiL is a low earner (primary school clerk) and so the interest only mortgage was taken out as tenancy in common. We paid the mortgage jointly and kept a ledger of all money given towards mortgage.
7 years later, MiL inherited and cleared the outstanding mortgage. She also paid back all mortgage payments that were made over the 7 year period. When we entered into this, we considered we were helping out MiL to stay in the house she loved, plus also having a nice savings plan that we were committed to.
As for self assessment, you might be right, that's potentially the q i am asked.
I think that's all info that's needed for now.
eltax91 said:
Hi all
Interesting conversation with a friend tonight. Years ago, (10 ish) he and his wife went into a tenancy in common with his mother in law, in which they jointly took out and paid a mortgage on the property she was living in. This was to avoid her moving home after a messy divorce.
MiL has since inherited and paid off the mortgage and paid back all mortgage payments to her daughter/ son in law that they assisted her with during the time between purchase and paying the mortgage.
He’s done several self assessments over that intervening time and says he always answered the question about owning another property with ‘no’ because he hasn’t ever seen it as his property.
Unfortunately MiL is currently unwell and entering end of life care. Thoughts have turned to what happens when they sell the house and do they have any tax liabilities? His wife is the sole heir to her mums estate if that matters.
Is there a tax liability such as CGT? If so, are they allowed to aggregate their allowances over that 10 year period or would it only be one years allowance and that’s that?
If it matters, he believes they equal shares (1/3 each) but can’t remember the specifics.
Before anyone says it. No it’s not me!
The only issue I can think of is whether the LA might put a charge over the 1/3rd of the house she "owns" to fund her care Home costs.Interesting conversation with a friend tonight. Years ago, (10 ish) he and his wife went into a tenancy in common with his mother in law, in which they jointly took out and paid a mortgage on the property she was living in. This was to avoid her moving home after a messy divorce.
MiL has since inherited and paid off the mortgage and paid back all mortgage payments to her daughter/ son in law that they assisted her with during the time between purchase and paying the mortgage.
He’s done several self assessments over that intervening time and says he always answered the question about owning another property with ‘no’ because he hasn’t ever seen it as his property.
Unfortunately MiL is currently unwell and entering end of life care. Thoughts have turned to what happens when they sell the house and do they have any tax liabilities? His wife is the sole heir to her mums estate if that matters.
Is there a tax liability such as CGT? If so, are they allowed to aggregate their allowances over that 10 year period or would it only be one years allowance and that’s that?
If it matters, he believes they equal shares (1/3 each) but can’t remember the specifics.
Before anyone says it. No it’s not me!
The "mortgage repayments" that she made weren't really mortgage repayments if there was no change in the ownership of the property. For IHT purposes these might need to be treated as gifts from income. However assuming these were below £175k then there shouldn't be an IHT liability
Caddyshack said:
There is a way to date a trust of land that puts all the equity in to the name of the mum, her will then gifts that back to you on death, thus wiping out any CGT liability, then it is down to IHT if applicable. Pm me if you want me to put you in touch with someone.
Seems legitAdamIM said:
I think you are missing the point that the elderly relative owns just 1/3rd of the asset. The owners of the other 2/3rds are raising the issue of CGT. The OP suggests however that the MIL paid them back so I'm not sure whether the MIL has effectively purchased their share back.
The fact that the names are on the deeds changes it a bit - the OP sounded a bit like an informal deal - mum owns the house, but kids helping out with the mortgage to keep her in place. If it is all on the deeds then my position would be:- Mum has no issue with IHT, 1/3 of the house is nowhere near the threshold.
- Son and daughter inherit 1/3 of the house with no issues.
- The remaining 2/3s is interesting. Get advice, because when she paid them back, that could be seen as a potentially exempt transfer (‘depending on the formality of the financial arrangement), or it could be seen as a simple “you own this asset which cost X to buy and is now worth Y, we’ll have some tax”). Speaking to the right expert could save you some money.
eltax91 said:
No idea. I do know that they bought it when his wife went to uni. That that would be around 20 years ago
Sorry - I meant from when they chipped in, you said around 10yrs ago.I asked because wife and her brothers did something similar for their Dad and took 25% of his house each (on the deeds) with a 10yr IO mortgage. In practice her Dad paid them back for the interest with annual Christmas cheques and settled most of the principal himself.
In 14yrs until he died the house hardly changed in value - terrible timing at both ends of the deal - so CGT wasn’t an issue.
Sheepshanks said:
eltax91 said:
No idea. I do know that they bought it when his wife went to uni. That that would be around 20 years ago
Sorry - I meant from when they chipped in, you said around 10yrs ago.I asked because wife and her brothers did something similar for their Dad and took 25% of his house each (on the deeds) with a 10yr IO mortgage. In practice her Dad paid them back for the interest with annual Christmas cheques and settled most of the principal himself.
In 14yrs until he died the house hardly changed in value - terrible timing at both ends of the deal - so CGT wasn’t an issue.
Not sure what the house was worth 10 years ago, I know the area a bit, i would hazard a guess at around £200k. Now, closer to £250k.
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