Property query

[MixsterMog]

I have lived with my partner for 16.5 years and we are buying a property on a mortgage. This is our main home and the only property I co-own.

Some time in 1994/96 my partners parents did a deed of gift transfer of their home to my partner. They continued to live in the house as did he (until he met me).

My partners father died in 1999 and his mother continued to live in the property until her death earlier this year.

Probate is being applied for but the solicitor raised questions about the deed of gift - this appears to have been mislaid as it was originally with the solicitor who drew it up and subsequently closed his office. It was transferred to another solicitor and the same thing happened with them they closed down but handed over the deeds which show the property registered in my partners name.

My partner has been made aware that owning this second property leaves him open to a large tax bill for Capital Gains tax.

It has been suggested that we sell the property we co-own and he pays CGT on half he owns less outstanding mortgage and we move into the other property.

Whilst I would be prepared to do this, for various reasons I won't go into,the house is not suitable and I would not want to make it a forever home. My partner fully supports this and is in agreement with this.

Our property would be in the region of £200k and we have a £20k outstanding mortgage which will be paid off in 3.5 years. The other property is worth in the region of £400 to £450k.

The query is then if we sell our home, pay tax and move into the other property, can we then do some essential works on the property and put it up for sale immediately or would we need to stay there for a set number of years to avoid my partner having to pay more tax.

[2222]

This all sounds a bit confused to me, I'm afraid.

First, there's Private Residence Relief which exempts your home from CGT in most circumstances. Details here:

https://www.gov.uk/government/public...ce-relief-2018

So, I really don't understand this bit: "It has been suggested that we sell the property we co-own and he pays CGT on half he owns less outstanding mortgage and we move into the other property."

There should be no question of CGT on your present home.



Second, yes, your partner is going to pay CGT when he sells his parents' home, but not until he sells it. So, he could keep it and rent it out without paying the CGT, for example.

Moving into it as your main residence only helps a little bit. When he sells it, the gain is then apportioned between the time it was his main residence and the time it wasn't.

There may be an extra 3 years somewhere he can elect for, but that sort of detail is beyond my pay-grade. Given the complicated trust arrangement, he may need specialist advice. For example, he owned it from 1995 say, and lived in it until 16 years ago, so that's around 7 years of residence. Followed by 16 years of non-residence. But, you'd need more expert advice on this than I can give you, certainly.


Can I ask whether your partner is the sole beneficiary of his mother's estate and roughly what that is worth (excluding the house)? Also, did his father leave more or less everything to his mother when his father died? Unfortunately, it is possible for a trust to be ineffective for IHT but still generate a CGT bill. If you can't find the trust document, that's a further complication.

[MixsterMog]

Thank you for replying.

His father died in 1999 and left everything to his mother.

He is an only child and sole beneficiary and I think his mothers left approximately £30k.

He doesn't want to keep the house but would sell it. To be honest neither of us wants to rent it out it's just the most cost effective way of dealing with the situation.

We stayed in the area due to her and now feel we can have some time to do/live where we want to.

[2222]

So, if the trust had not been set up, your partner would receive the house under his mother's will. There would be no Inheritance Tax, as the tax-free allowance is £325k, but his mother 'inherits' his father's unused allowance of £325k. So, £650k in all, which more than covers the estate plus the house. So, no IHT.

If he inherited the house through his mother's will, it would be inherited at the current value, not the 1995 value. So, no CGT either.

I'm not going to advise you to forget all about the trust, as this website is called legalbeagles, not taxfraudbeagles. Nevertheless, if it proves impossible to establish that the trust exists, you might not want to lose too much sleep over it, as that might be the better outcome from a tax point of view.

[MixsterMog]

Thank you for your help.

He has the invoice which shows a deed of gift was drawn up and the deeds are in his name. Will this make any difference? This documentation has been passed to a solicitor to deal with Probate.

I suspect that they did this to avoid paying nursing home fees in the event they needed care.