A little off-topic, but there's a wealth of relevant experience and expertise in here...
I've inherited a house. I'm thinking it would be best to put it in joint names with Management so as to use both mine and her CGT allowance when it comes time to sell. I expect it would also help with IHT should one of us fall off our perch earlier than we would hope?
Am I right, or have I missed something?
Are there any other advantages? Any disadvantages?
On Saturday 09 March 2013 21:14 F wrote in uk.d-i-y:
Ask a solicitor - this stuf is complicated.
Yerrs. you need a solicitor. Its not complicated BUT it needs to be drawn up just right. Or the taxman will chase you.
And you need an accountant.
I THINK it may be easier to leave it in one persons name but give the other beneficial rights...makes the sale simpler.
First stop accountant, second solicitor.
news:uk.legal.moderated
I think in principle yes it can be done - ie you gift SWMBO half of the house - but AFAIK I think there is a risk that if you then immediately flog the property HMRC could look at the situation and have it in their power to void the gift because it was undertaken purely to reduce tax. (Whereas if you were to keep the property a good long time, then that would not be an issue)
IANAL though...
The inheritance is tax paid so any CGT will be only be due (when selling) on anything positive from the "aquistion" price and the selling price. This might take quite a while in the current markets to get bigger than the CGT allowance... That's assuming this house doesn't become your primary residence as they are CGT excempt...
Everyone ought to be planning how to reduce the amount their estate has to pay to HMG, but many don't. What are you going to do with the house before you sell? Live in it, second home, rent it out, or just take stock and sell soon? Have you any kids? Might be worth passing it on to them if your estate(s) are already banging into IHT.
It can get complicated depending on what assets are already held and whose name(s) those assets are held by. "Tennants in Common" I think is the legal phrase, means that the property automaticly passes to the survivor without being part of the deceased estate but it does then become part of the survivors estate, which might not be the best thing if they have a significant estate of their own. Also there are legal definitions of who is decreed to have died first and thus how things shift if you are both die at the same time.
But not just any accountant, one specialising in personal tax is required and the solicitor needs to know about personal affairs, Wills, Lasting Power of Attorney, etc
It's not so much complicated as lots of gotchas that vary depending on circumstances.
Somewhere in here is a condition that the gifter has to outlast the gifting by seven years. You need, as has already been said, professional help.
ITYF that doesn't apply to gifts between husband and wife.
Indeed gift to spouses are classed differently. Also I seem to remember that the rules on IHT have changed a bit for married couple relatively recently. It used to be that high value (or second homes etc) places were best held as tenants in common (i.e. each owning half, and hence requiring one spouses half to be willed to the other) rather than joint tenants (i.e. jointly owning 100%) since it allowed use of both IHT allowances.
You might consider moving in there & selling your existing house. Possible to avoid CGT altogether this way?
Also, if all the beneficiaries of a will agree, you can vary the terms such that the house is willed to you both. (deed of variation) IANAL:-)
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Are you intending to get divorced?
uk.legal.moderated is well worth checking.
Andy
Yes, that's the simple solution. You don't even have to tell the tax man IIRC, just keep a copy of the deed (which you can download and print)
Unless you suddenly find a gold mine in the garden there will be no tax to pay by the recipients of a recently inherited property, in the current market
tim
Sorry, yes, agreed. It's the difference in value between when it's inherited and when its eventually sold by the receipient that's potentially liable for CGT as someone else said.
'Tenants in Common' means that husband and wife each own (usually) 50 percent of the property, and that share forms part of their individual estates. Each can will that share to whoever they want.
'Joint Tenants' own the whole house between them, such that on the death of one of them the other automatically inherits without it becoming part of the deceased's estate.
If the object involves minimising CGT and IHT, then professional advice is a must. If the object is to let the property, that adds another layer. Given the value of the house, and the severity of the possible pitfalls, the cost is trivial.
I would recommend professional help with this but NOT a solicitor but a financial advisor. Solicitors are rarely qualified for all aspects of tax although you will require one to draw up and legalise your solution.
Thanks for the helpful suggestions: appreciated.
Just to bring things up-to-date, the house will probably be let, Management hasn't issued divorce papers (yet!), I've reposted to u.l.m and I'm seeing a solicitor tomorrow.
The reason for the questions was to give me a feeling for questions I might want answered by him and to check to see if I'd missed any options that might be better than the ones I'm considering.
As has been pointed out, in the present market CGT isn't likely to raise its very ugly head but I'm trying to cover as many eventualities as I can in one go.
The rental income will up somebody's tax liability I guess
My experience has been that solicitors, even if they are tax savvy, usually avoid suggesting tax avoidance measures. A financial advisor - who will want a fee - is more likely to talk about the range of possibilities and then the solicitor will comment/advise on the risks associated with each.
Owning two properties are quite likely to take you and your wife over the IHT threshold on the second death. If you are letting it out, there could be less income tax arising from the rent, it is is in the name of the lowest tax payer. If the rent would take either of you into high rate tax, then it might be that equal ownership and splitting the taxable income equally could keep you both below the high rate threshold.
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