Hello
I have a client who inherited a property in 2005 when his mother died. In her will it was a condition that her partner lived there rent free for as long as he needed.
4 months ago he went into sheltered housing and my client is going to sell the property.
Am I right that he will receive no reliefs other than the CGT allowance? He never lived in the property, although could it be deemed as being rented, even although no rental income was received, as there was a tenant?
Thanks for any responses
Leigh
Replies (9)
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No lettings relief
I am not sure I understand what you are asking, but if you are not entitled to PPR relief (as it was never your residence, main or otherwise), you cannot be entitled to lettings relief. Presumably, by CGT allowance, you mean the CGT annual exemption. There used to be Dependent Relative Relief, but not on a house acquired after April 1988 and I don't think that "partner" would have qualified as a relative.
Maybe
A partner would qualify if he was the foster parent. (Unlikely scenario though)
http://www.hmrc.gov.uk/manuals/cgmanual/CG65574.htm
PPR relief may be available if the property is considered "settled property" for the purposes of section 226 TCGA 1992.
It sounds as though mother created a trust on her death with the partner being life tenant.
If so, the trustees will be able to claim PPR on disposal (Samson v Peay) as PPR extends to a trust where a beneficiary resides in the property as his main residence. So, there is unlikely to be any CGT if he lived in the property since death of mother, which it sounds as though he did.
It would also seem like the trust has come to an end when the partner entered residential care. Typically these type of trusts are set up on second marriage where children from the first marriage would have their inheritance protected and also to avoid the property being taken into consideration for means testing if party has to enter residential care.
If partner had died when living in the house, the value of the property would be added to the free estate of partner for IHT purposes.
Without seeing trust deed/will, it appears that the property is now your clients property. Generally though, this would be how it would be drafted.
You need to check the will though. Because if there has been no trust created, then it would probably be your client's property absolutely. In which case, Euan is right, and there will be no relief other than an AE because your client would not have lived in the property.
Acquisition value?
Your client's deemed acquisition cost is market value. But if he acquired the property absolutely on his mother's death, the value at that time could have been reduced by her partner's right to occupy. This interpretation would give the client a bigger gain with no PPRR.
So hopefully it will be possible to show that there was a trust, as your client's base cost would then be the market value (unencumbered) on the date the trust came to an end a few months sgo.
Without seeing the documents it is difficult to comment
The first bit about the will sounds like a trust was created when mum died. However, you then go on to talk about leaseholder. The sons are not leaseholders. The trustees of the trust (probably executors of the will) are the owners of the property and mums partner is life tenant. The sons are therefore remaindermen.
Often the will would say that the house, or a replacement house is held on life interest trust for the life tenant and the trust would terminate on some specific event. (typically, remarriage etc)
The life tenant can revoke his life interest in the property at any time, but if he has revoked it because he does not want the house to be taken into account for means testing, ie going into a home, and this is given as a reason, then the council can ignore the gift as it is a deprivation of assets. The trustees can, if they have been given an overriding power of appointment, terminate the life interest. They can do this for whatever reason they want and it would not be deprivation of assets. The life tenant would not normally need to consent to that if the trustees had been given such a power. So I cannot see why, if this was the case, mums partner had signed the document.
If the property is sold, then depending on the terms of the will, the funds may be taken into consideration for means testing if it was deemed to be a deprivation of assets. My guess is that it would be, since why would the sons try to draw up this document if the will said the life interest is terminable on the entering of means tested accommodation. If it is not sold, then the council could put a charge on it.
In terms of CGT, the property would be treated in exactly the same way, with the same reliefs as if it was owned personally. However, in terms of means testing, the house may be taken into consideration because it sounds as though the deed drawn up by the sons/partner would be considered deprivation of assets. Google "deprivation of assets"
The clients need to take specialist advice on this.
Get them to take the will and the document they have drawn up.
Leigh, the means testing has nothing to do with the Will. Previous posters brought this up in relation to the local authorities. If the home is being paid for by the local authority and the occupier has assets, then those assets have to be used to re-imburse the council/pay the home's fees. By depriving himself of those assets, he appears to be trying to get around this if, indeed, it is the case that he is not paying the home's fees. If he is, then this may not be relevant.