Capital gains Tax on Mothers house

Capital gains Tax on Mothers house

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My brother and I transferred title of mothers house into our names 6 years ago. She does not pay rent . I read about this being a problem recently, what does it mean? What are the consequences of selling the house?

Should I do anything at present?
Many thanks
John
John Robertson

Replies (4)

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By Paul Soper
25th Jan 2005 22:42

But...
Paying rent removes the reservation but it is itself a PET at the date the reservation is removed and if the mother dies within 7 years of this event there will be an IHT charge.

The revenue believe that the letting exemption is only available where the property is occupied as a PPPR and then let - they do not think it can be claimed where the letting is followed by a period of qualifying occupation. There is no support for this interpretation in the act but you could become unlucky and be the test case to see if they're right!

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By AnonymousUser
25th Jan 2005 13:52

What if she paid full market rent?
Can anyone advise whether the reservation of benefit would apply if the mother was to pay full market rent for the property?

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By gbuckell
25th Jan 2005 14:25

Paying a market rent
Paying a full market rent would remove the reservation. However, the seven year waiting period will only begin once the reservation is removed.

This will not avoid the capital gains tax problem.

This problem might be reduced by the sons occupying the property as a part-time residence (post mum's death?)and making a PPR election. If rent has been paid this will allow them the letting exemption as well as the final 36 months.

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By Paul Soper
24th Jan 2005 15:56

Who transferred?
Its amazing isn't it - it was your mother that transferred the title in her house to you, not you who transferred title into your names!

But what goes around comes around, as they say. As she continues to live in the property there is a clear reservation of benefit for IHT purposes and so the asset is past of your estates, as legal owners, and if you were to die that share would be chargeable, but its also still part of your mother's estate from an IHT point of view so its doubly chargeable - well done. As it is already part of her estate it will not be caught by the new income tax charge on pre-owned assets.

And to compound your misery it is also fully chargeable to CGT when you eventually come to sell it before your own deaths as it is not the main residence of any one of you and the exemption for dependent relative occupation was ended in 1988! Although your mother may have been in occupation then the act refers to "in your period of ownership". Ironically if you had been well advised you could have put the property into a trust at that time and allowed your mother to occupy it as a beneficiary and the CGT liability would have been avoided. It is too late to do this now as you would need to claim gift relief to avoid the gain arising on transferring the property into settlement, and that in turn has prevented main residnce relief for trusts being available since 10 12 2003.

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