Good morning, your help with this one would be much appreciated.
Parents funded the purchase of their residence outright but put it in their two sons’ names- a gift to them with no conditions. Parents have always lived in property along with one of the sons.
Parents own other investment properties.
Husband has died - wife wants to continue to live in the residence. She likes it so much she says she never wants to move.
Wife needs to undertake some IHT planning as estate is well over £1million.
Am I right in thinking that-
Residence will be considered part of her estate for IHT purposes under the GWROB rules?
Her executors won’t be able to claim the RNRB as she has never owned the property.
That the situation is a bit of a nightmare!
Good news is that the boys are happy to gift property to mum. She is also worried about one of them wanting to sell up further down the line and she wants to stay put, this is her home.
One son lives in property - no CGT
One son has lived in New Zealand for many years - doesn’t pay any UK taxes - so presumably no CGT?
This would surely be best course of action or can anyone see any further problems. Once transfer is complete she is going to make a gift of one of the investment properties to get that out of her estate (understanding of course that she will have to give up the income).
Your feedback would be much appreciated thank you!
The son living in New Zealand would be liable to pay CGT under the non-resident CGT on residential property rules which were introduced from 6 April 2015.
It seems that the parents gifted their respective beneficial interests in the purchased property to their two sons. There parents then resided in the property thus giving rise to GWRs by each parent.
Am I right in thinking that-
1. Residence will be considered part of her estate for IHT purposes under the GWROB rules?
CORRECT
2. Her executors won’t be able to claim the RNRB as she has never owned the property.
IT SEESM TO ME THAT EACH PARENT DID POSSESS BENEFICIAL INTERESTS IN THE PROPERTY BUT SUCH INTERESTS DO NOT CONSTITUTE “QUALIFYING RESIDENTIAL INTERESTS” AND HENCE ON HER DEATH NO RNRB.
3. That the situation is a bit of a nightmare!
POSSIBLY !!
If each son gifts their respective interest back to mother no CGT re UK son who has lived in the property but CGT on part of non-UK resident son. However, if post the gift the UK son continues to live in the property his gift is a GWR.
I don’t think the CGT bill will be very big. Far important for mum to have the security of owning the property she is living in. The boys are very young men without partners currently - anything could go wrong. And then of course there’s the additional inheritance tax that her estate will have to pay if we don’t go ahead.
The son living at home won’t be living there indefinitely- he’s early 20’s so will move out eventually!
If Mother has sufficient disposable income, another option would be for Sons to grant her a lease of the property at market rent. If she lives long enough, the IHT on the GWR will fall away, and paying the rent to her sons means that this otherwise excess income is not swelling her taxable estate.
The sons will need to take advice regarding their own tax positions. If potential for bankruptcy, divorce, or sideways disinheritance are of more concern to the sons than a potentially larger tax bill, this would also be a propitious time for them to consider whether moving the property into a trust would be beneficial for them.
Might it be preferable for the son in NZ to gift his share of the property to Mum, and for her to make a will giving him her share of the property. This will ensure that the son living in the house retains CGT main residence relief.
However, before anything might be put in train, the son in NZ would also need to take his own tax and legal advice as any arrangement might have adverse consequences for him.
Paul Saunders FCIB TEP
Independent Trust Consultant
Providing support and advice to fellow professionals