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Delaying CGT on GWRB Property

Delaying CGT on GWRB Property

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My client has lived in her house since purchase and the mortgage paid off indirect by her via her daughter. Deeds are in her daughter's name since purchase. Daughter moved out after 10 years. No rent has been paid to her daughter therefore I believe the property will be deemed as a GWRB and brought back into my client's estate for IHT purposes upon her death. I believe that RNRB will still be permitted as the daughter will have essentially inherited the property? 

The issue which has arisen is that my client wishes for the deeds to be transferred into her other daughter's name who has also lived in the property since purchase and continues to do so. I am questioning whether such a transfer will trigger CGT for the daughter who currently has her name on the deeds?

Alternatively, if the property is tranferred to my client might this avoid CGT altogether if she lives in it until her death and passes it onto her children?  

Many thanks.

M

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By Paul Crowley
01st Sep 2020 19:02

Mani1 wrote:

My client has lived in her house since purchase and the mortgage paid off indirect by her via her daughter. Deeds are in her daughter's name since purchase. Daughter moved out after 10 years. No rent has been paid to her daughter therefore I believe the property will be deemed as a GWRB and brought back into my client's estate for IHT purposes upon her death. I believe that RNRB will still be permitted as the daughter will have essentially inherited the property? 

The issue which has arisen is that my client wishes for the deeds to be transferred into her other daughter's name who has also lived in the property since purchase and continues to do so. I am questioning whether such a transfer will trigger CGT for the daughter who currently has her name on the deeds?

Alternatively, if the property is tranferred to my client might this avoid CGT altogether if she lives in it until her death and passes it onto her children?  

Many thanks.

M

Difficult to understand.
So according to land registry and all documents, Daughter 1 bought a house and occupied as PPR for 10 years. Mum contributed to the mortgage repayments. Daughter 1 is considering gifting property to her sister, or possibly her mum if that somehow reduces tax.
There is and has never been a trust involved.
Is my understanding correct?

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By Mani1
01st Sep 2020 20:09

Apologies if that was hard to follow!

Your summary is correct although all mortgage repayments were paid indirectly by the Mum i.e. paid to Daughter 1 who then paid the mortgage.

Just to add, Mum and sister currently living in the property own no other properties whereas Daughter 1 does.

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Replying to Mani1:
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By Paul Crowley
01st Sep 2020 21:16

This needed sorting on departure of Daughter 1.
At face value daughter 1 has 2 properties, her PPR and the house Mum and daughter 2 live in rent free.
Mum appears to have made gifts out of income to daughter 1

There needs to be some contemporaneous paperwork indicating an alternative view of the position to change my opinion. I suspect that probably does not exist.

It would appear that a gift from daughter 1 to either other party gives rise to CGT.

This looks a bit like care home cost planning. Would probably have been successful subject to whatever happened to the House Mum had before this one was bought.
All Care home cost planning was usually done in the knowledge that inefficient for tax, but tax is never 100%, Care home costs are 100%.

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Replying to Paul Crowley:
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By Tax Dragon
02nd Sep 2020 06:53

Paul Crowley wrote:

Would probably have been successful subject to whatever happened to the House Mum had before this one was bought.

I make no comment except to try to guess (I love these Aweb guessing games) the answer to the bit following your "subject to": the proceeds formed the original gift to daughter to help her buy the house, or more likely mum gifted the previous property so daughter could roll over the proceeds.

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By Mani1
02nd Sep 2020 08:14

Actually, they lost the previous family home due to bankruptcy hence why Daughter 1 had the house in her name.

Given their history, it's a shame that they cannot avoid or delay the CGT upon transfer.

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By Paul Crowley
02nd Sep 2020 10:29

Sympathy
If only there was something in writing.............

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Replying to Paul Crowley:
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By Mani1
02nd Sep 2020 10:32

Paul Crowley wrote:

Sympathy
If only there was something in writing.............

Something in writing to state what exactly?

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By Paul Crowley
02nd Sep 2020 10:39

That Mum is the beneficial owner of the property and will be refunding daughter 1 the full mortgage costs.
Given circumstances Mum could not get a mortgage, Daughter was simply acting on her behalf.
It would of course be exceedingly improper to back date any paperwork. But to now confirm the original understanding?

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Replying to Paul Crowley:
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By Tax Dragon
02nd Sep 2020 10:41

My first guess was out, so I'll try again: could the bankruptcy be why such a document does not exist? (That feels like less of a guess and more like what we've been told, so I'll be miffed if I'm wrong again.)

OP: how was the deposit for the house funded? When did all this happen?

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Replying to Tax Dragon:
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By Mani1
02nd Sep 2020 10:43

Tax Dragon wrote:

My first guess was out, so I'll try again: could the bankruptcy be why such a document does not exist? (That feels like less of a guess and more like what we've been told, so I'll be miffed if I'm wrong again.)

OP: how was the deposit for the house funded? When did all this happen?

I'd need to ask those question but I know it occurred around 1995. What difference might the answers make?

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By Tax Dragon
02nd Sep 2020 11:28

I'm mainly trying to understand. Transactions have tax tails (consequences) that linger decades after they happen; knowing about past transactions can be critical to the current tax position. You started by saying the property deeds were in the daughter's name; Paul asked you did she buy it?; you said yes she did; then you talked again just about it being in her name. Those two are not mutually exclusive, obviously, but they have different connotations, at least in my mind [regarding who funded the purchase... hence my first question].

I was also curious about your sentence "No rent has been paid to her daughter therefore I believe the property will be deemed as a GWRB." Lack of rent is not itself sufficient for a GWRB to arise (i.e., you have to be within the GWRB rules in the first place, before you consider whether rent was paid). For there to be a GWRB, there has to be a G. I'm not an expert on bankruptcy, but I'd guess there are rules against making Gs; no G, no GWRB.

As for asking about the date... tax rules change with time, and the way a tax tail wags can depend on where it starts - i.e. the tax year the originating transaction occurred.

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Replying to Tax Dragon:
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By Mani1
03rd Sep 2020 08:50

Tax Dragon wrote:

I'm mainly trying to understand. Transactions have tax tails (consequences) that linger decades after they happen; knowing about past transactions can be critical to the current tax position. You started by saying the property deeds were in the daughter's name; Paul asked you did she buy it?; you said yes she did; then you talked again just about it being in her name. Those two are not mutually exclusive, obviously, but they have different connotations, at least in my mind [regarding who funded the purchase... hence my first question].

I was also curious about your sentence "No rent has been paid to her daughter therefore I believe the property will be deemed as a GWRB." Lack of rent is not itself sufficient for a GWRB to arise (i.e., you have to be within the GWRB rules in the first place, before you consider whether rent was paid). For there to be a GWRB, there has to be a G. I'm not an expert on bankruptcy, but I'd guess there are rules against making Gs; no G, no GWRB.

As for asking about the date... tax rules change with time, and the way a tax tail wags can depend on where it starts - i.e. the tax year the originating transaction occurred.

Daughter 1 has always had deeds in her name but the mortgage and deposit were paid by the mum despite them being in Daughter 1's name.

Good point on making gifts - I guess I'd need to follow up with a solicitor?

Date was May 1995. I believe there is no document stating who the beneficiary is.

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Replying to Paul Crowley:
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By Mani1
02nd Sep 2020 11:02

Paul Crowley wrote:

That Mum is the beneficial owner of the property and will be refunding daughter 1 the full mortgage costs.
Given circumstances Mum could not get a mortgage, Daughter was simply acting on her behalf.
It would of course be exceedingly improper to back date any paperwork. But to now confirm the original understanding?

Do you think confirming the original understanding now would be sufficient to avoid having to pay CGT? All of the payments and the living situation would suggest that this was the intention.

If yes, would their best option then be to transfer the house to the Mum for her to then pass on the property to whomever she chooses in her Will? Of course, I am calculating this does not affect her IHT due to the values involved.

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By Tax Dragon
02nd Sep 2020 11:20

Mani1 wrote:

Do you think confirming the original understanding now would be sufficient to avoid having to pay CGT?

This thread is wandering onto legal (reserved activity) territory. Time to get a solicitor involved.

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By Tax Dragon
02nd Sep 2020 11:26

Mani1 wrote:

Do you think confirming the original understanding now would be sufficient to avoid having to pay CGT?

Paul will have to answer for himself, but I'd guess [my final guess!] he'd say "no", in view of his earlier statement:

Paul Crowley wrote:

There needs to be some contemporaneous paperwork indicating an alternative view of the position to change my opinion.

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By Paul Crowley
02nd Sep 2020 12:32

This issue should have been addressed when property bought.
If not sorted at that time, It could have been resolved when Daughter 1 left.

On both occasions, a 10 minute call with either an accountant or solicitor would have got a workable answer.

This is a house. It should be obvious to all who owns the house

Clearly it is not and probably never has been as your client seems to think she owns it. Or did own and gave it away.

The only instant workable easy solution is to accept the damage and transfer now.

An alternative is to do nothing and use daughter 1's death as a planning tool. Very risky.

Second alternative is to ask whoever dealt with the purchase (solicitor) whether there was any contemporaneous record that could serve the purpose of clearly indicating the true beneficial owner of the property.

Was there a deed that has been misplaced or lost?

We are not in an accountancy place, only solicitors can prepare deeds for other people.

However, accountants did this stuff in the past and were encouraged to do so on respected CPD events until the legal people took exception. Hence worth asking any prior accountant whether the wrong owner issue was adressed in writing.

Even then no guarantees of satisfactory outcome.

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Replying to Paul Crowley:
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By Mani1
03rd Sep 2020 08:52

Paul Crowley wrote:

This issue should have been addressed when property bought.
If not sorted at that time, It could have been resolved when Daughter 1 left.

On both occasions, a 10 minute call with either an accountant or solicitor would have got a workable answer.

This is a house. It should be obvious to all who owns the house

Clearly it is not and probably never has been as your client seems to think she owns it. Or did own and gave it away.

The only instant workable easy solution is to accept the damage and transfer now.

An alternative is to do nothing and use daughter 1's death as a planning tool. Very risky.

Second alternative is to ask whoever dealt with the purchase (solicitor) whether there was any contemporaneous record that could serve the purpose of clearly indicating the true beneficial owner of the property.

Was there a deed that has been misplaced or lost?

We are not in an accountancy place, only solicitors can prepare deeds for other people.

However, accountants did this stuff in the past and were encouraged to do so on respected CPD events until the legal people took exception. Hence worth asking any prior accountant whether the wrong owner issue was adressed in writing.

Even then no guarantees of satisfactory outcome.

See here under the section 'Unfortunate Circumstances':

https://www.taxinsider.co.uk/putting-property-in-the-name-of-another-per...

Sounds like there is potential to legally prove you are the beneficial owner without documentation.

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Replying to Mani1:
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By Paul Crowley
03rd Sep 2020 09:42

'Unfortunate Circumstances
For example, one client did not want his name to appear as the owner of some property he wanted to develop and sell. He therefore bought it “in the name of” his girlfriend. He provided the money for the deposit, paid the mortgage, and paid for the refurbishment of the property. Before the property could be sold, however, his girlfriend died. As a result HM Revenue and Customs took the view that the property was part of her estate and inheritance tax was due (at 40%) on its value.

Apart from the fact that we could prove the client had provided the money for the purchase and the refurbishment, there was nothing in writing to say that the deceased girlfriend was not the beneficial owner, and it took literally years of arguing with HMRC finally to persuade them that the property should not be included in her estate.'

It took years of arguing being the critical point. This was also not CGT but Inheritance tax.
I expect that there was lots of documentation and clear money trails. The tax at stake was 40% of full value of property, not 18% of gain.
As such it was worth spending the time and money.

I do not think anything was proven, but HMRC accepted on balance under their management powers.

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Replying to Paul Crowley:
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By Mani1
03rd Sep 2020 09:53

Paul Crowley wrote:

'Unfortunate Circumstances
For example, one client did not want his name to appear as the owner of some property he wanted to develop and sell. He therefore bought it “in the name of” his girlfriend. He provided the money for the deposit, paid the mortgage, and paid for the refurbishment of the property. Before the property could be sold, however, his girlfriend died. As a result HM Revenue and Customs took the view that the property was part of her estate and inheritance tax was due (at 40%) on its value.

Apart from the fact that we could prove the client had provided the money for the purchase and the refurbishment, there was nothing in writing to say that the deceased girlfriend was not the beneficial owner, and it took literally years of arguing with HMRC finally to persuade them that the property should not be included in her estate.'

It took years of arguing being the critical point. This was also not CGT but Inheritance tax.
I expect that there was lots of documentation and clear money trails. The tax at stake was 40% of full value of property, not 18% of gain.
As such it was worth spending the time and money.

I do not think anything was proven, but HMRC accepted on balance under their management powers.

My bad! Thanks.

I estimate they will have an optimistic minimum £70k CGT bill so I think it would still be worth them seeking legal advice.

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Replying to Mani1:
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By Tax Dragon
03rd Sep 2020 10:30

Mani1 wrote:

I think it would still be worth them seeking legal advice.

I agree. (I think you knew that already.)

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Replying to Paul Crowley:
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By Tax Dragon
03rd Sep 2020 10:25

An odd case. I'd've expected (unless her Will left everything - presumably it would not have mentioned the property - to the BF) the primary battle to have been between her heirs [she clearly had enough about her for IHT to be an issue] and him. HMRC would automatically fall in line behind the outcome of that legal battle.

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By Mani1
02nd Sep 2020 11:03

.

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By Tax Dragon
02nd Sep 2020 12:34

FWIW, I disagree with Paul to some extent. But, absent answers to my questions, I won't speculate further (my record at guessing on this thread is not good).

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By Paul Crowley
02nd Sep 2020 13:25

Pure coincidence
Received today letter from solicitor advising completion date on 4th Sept 20 and enclosing deed of gift to husband dated 28 Aug 20
No PPR, buy to let property

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By Tax Dragon
02nd Sep 2020 13:58

Your clients need to learn to take tax advice from you. (Maybe this will be a lesson towards such learning?) Threads are melding together in my mind today, but someone made a comment somewhere today about professional boundaries. Now there's another coincidence!

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By MuayThai
03rd Sep 2020 11:08

My 2 cents: There is no initial gift so there isn't a gwrb. Payments of the mortgage are PETs from mum to daughter. After AE each year this will reduce NRB. Not in trust so IIP rules irrelevant. House is currently in daughter 1 estate. Gift to daughter 2 will take place at MV and gain on that. No reliefs available for that gain. Do it before CGT rates go up to 45%

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Replying to MuayThai:
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By Mani1
03rd Sep 2020 12:02

That makes sense.

I still think it's worthwhile seeking legal advice on beneficial ownership of the mum as that has the potential of saving them a lot in CGT.

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By Tax Dragon
03rd Sep 2020 12:12

Mani1 wrote:

That makes sense.

The CGT bit, maybe. The IHT bit, not so much. (I've assumed you are not advising on IHT. If you are, comments about that tax in this thread should be read with due caution.) But see what the legal lady says, as obviously that could have a potentially significant impact on both taxes.

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Replying to Tax Dragon:
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By MuayThai
03rd Sep 2020 12:25

Paying CGT on the gift is the trade off for not having the house in the mums name and paying IHT on it when she carks it. I personally wouldn't pursue the route of trying to skimp out on paying the CGT, you're asking for hassle

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By Tax Dragon
03rd Sep 2020 12:32

I would view the CGT (if it's due) as a trade-off for possibly dodgy dealings in 1995 when the bankruptcy was in progress. Oh, and failure to deal with the position when daughter 1 moved out, as Paul said.

I'm not commenting further on the IHT, except to say I don't agree your analysis - irrespective of what the legal lady comes back with.

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