Houses and CGT
Discussion
Bear with me on this one, it is a little convoluted.
Some 12 years ago my wife's parents divorced.
Her mum was seriously had over and walked away with very very little - to the point we let her live in one of our houses for which she receives housing benefit she pays us as part of the rent we would normally be able to collect. This is all declared and agreed with the local authority.
She was granted a flat that her and her husband owned as part of her divorce settlement.
However, this flat had a sitting tenant (My MIL's step mum - keeping up?) who was granted the flat until she died rent free.
Now that sitting tenant has left the flat - she hasn't died, but has been moved into sheltered accommodation.
This means she has finally come into possession of this flat. (Oh moving into it is not an option for many reason not least the MIL has two artificial hips, one new knee and there are too many stairs at the flat)
So, options.
1. Sell the flat - would she be liable for CGT? As I see it there are two arguments. Firstly that as she has only just come into true possession of the flat there will be no capital gain? Or, she was deemed to own the flat for last 12 years and has a CGT liability?
2. Rent the flat out and use the income from that to pay for the rent on our house she currently lives in. Gross annual rent would be around £4800 which i guess would be income and when combined with the meagre pension she has a small tax liability would probably be due.
3. Gift the property - is this possible. What are the things to consider?
A considered view would be appreciated as going to the local housing authority, the shark of a solicitor who set this up at divorce time and the citizens advice has not produced any consistant answers.
I am stumped.
Some 12 years ago my wife's parents divorced.
Her mum was seriously had over and walked away with very very little - to the point we let her live in one of our houses for which she receives housing benefit she pays us as part of the rent we would normally be able to collect. This is all declared and agreed with the local authority.
She was granted a flat that her and her husband owned as part of her divorce settlement.
However, this flat had a sitting tenant (My MIL's step mum - keeping up?) who was granted the flat until she died rent free.
Now that sitting tenant has left the flat - she hasn't died, but has been moved into sheltered accommodation.
This means she has finally come into possession of this flat. (Oh moving into it is not an option for many reason not least the MIL has two artificial hips, one new knee and there are too many stairs at the flat)
So, options.
1. Sell the flat - would she be liable for CGT? As I see it there are two arguments. Firstly that as she has only just come into true possession of the flat there will be no capital gain? Or, she was deemed to own the flat for last 12 years and has a CGT liability?
2. Rent the flat out and use the income from that to pay for the rent on our house she currently lives in. Gross annual rent would be around £4800 which i guess would be income and when combined with the meagre pension she has a small tax liability would probably be due.
3. Gift the property - is this possible. What are the things to consider?
A considered view would be appreciated as going to the local housing authority, the shark of a solicitor who set this up at divorce time and the citizens advice has not produced any consistant answers.
I am stumped.
davemac250 said:
Bear with me on this one, it is a little convoluted.
Some 12 years ago my wife's parents divorced.
Her mum was seriously had over and walked away with very very little - to the point we let her live in one of our houses for which she receives housing benefit she pays us as part of the rent we would normally be able to collect. This is all declared and agreed with the local authority.
She was granted a flat that her and her husband owned as part of her divorce settlement.
However, this flat had a sitting tenant (My MIL's step mum - keeping up?) who was granted the flat until she died rent free.
Now that sitting tenant has left the flat - she hasn't died, but has been moved into sheltered accommodation.
This means she has finally come into possession of this flat. (Oh moving into it is not an option for many reason not least the MIL has two artificial hips, one new knee and there are too many stairs at the flat)
So, options.
1. Sell the flat - would she be liable for CGT? As I see it there are two arguments. Firstly that as she has only just come into true possession of the flat there will be no capital gain? Or, she was deemed to own the flat for last 12 years and has a CGT liability?
She would be potentially liable to CGT. CGT is based on the sale proceeds of the asset less the cost of the asset on the date of purchase. The cost figure is augmented by adding on any enhancement costs incurred on the property during its period of ownership plus the legal and ancilliary costs incurred on disposal.
If there was no "original cost" as such, Market Value at the date of acquisition is substituted instead. She "acquired" the flat the day she became the legal owner i.e. 12 years ago. From what you say, she appears to have acquired a half-share in this flat so her share of the sales proceeds if it was sold would be limited top 50% (and 50% of any Capital Gain.
2. Rent the flat out and use the income from that to pay for the rent on our house she currently lives in. Gross annual rent would be around £4800 which i guess would be income and when combined with the meagre pension she has a small tax liability would probably be due.
Was she not receiving any rent on this flat up to now?
Obviously, rental income is taxable - and, as in the CGT situation, she would be entitled to HALF the rental income. Landlords are allowed offest against their rental income allowable costs. So they are not taxed on the fuull gross rent received from the tenant.
3. Gift the property - is this possible. What are the things to consider?
The law does not prohibit gifts. However, what would be the point of this?
A gift, in law, means that the original owner of the asset has no rights to that asset once it is given away. That includes rights to rental income on that property otr a right to live there. If the property is gifted with some "reservations of title", then HMRC will apply special anti-avoidance Income Tax rules.
A considered view would be appreciated as going to the local housing authority, the shark of a solicitor who set this up at divorce time and the citizens advice has not produced any consistant answers.
I am stumped.
Some 12 years ago my wife's parents divorced.
Her mum was seriously had over and walked away with very very little - to the point we let her live in one of our houses for which she receives housing benefit she pays us as part of the rent we would normally be able to collect. This is all declared and agreed with the local authority.
She was granted a flat that her and her husband owned as part of her divorce settlement.
However, this flat had a sitting tenant (My MIL's step mum - keeping up?) who was granted the flat until she died rent free.
Now that sitting tenant has left the flat - she hasn't died, but has been moved into sheltered accommodation.
This means she has finally come into possession of this flat. (Oh moving into it is not an option for many reason not least the MIL has two artificial hips, one new knee and there are too many stairs at the flat)
So, options.
1. Sell the flat - would she be liable for CGT? As I see it there are two arguments. Firstly that as she has only just come into true possession of the flat there will be no capital gain? Or, she was deemed to own the flat for last 12 years and has a CGT liability?
She would be potentially liable to CGT. CGT is based on the sale proceeds of the asset less the cost of the asset on the date of purchase. The cost figure is augmented by adding on any enhancement costs incurred on the property during its period of ownership plus the legal and ancilliary costs incurred on disposal.
If there was no "original cost" as such, Market Value at the date of acquisition is substituted instead. She "acquired" the flat the day she became the legal owner i.e. 12 years ago. From what you say, she appears to have acquired a half-share in this flat so her share of the sales proceeds if it was sold would be limited top 50% (and 50% of any Capital Gain.
2. Rent the flat out and use the income from that to pay for the rent on our house she currently lives in. Gross annual rent would be around £4800 which i guess would be income and when combined with the meagre pension she has a small tax liability would probably be due.
Was she not receiving any rent on this flat up to now?
Obviously, rental income is taxable - and, as in the CGT situation, she would be entitled to HALF the rental income. Landlords are allowed offest against their rental income allowable costs. So they are not taxed on the fuull gross rent received from the tenant.
3. Gift the property - is this possible. What are the things to consider?
The law does not prohibit gifts. However, what would be the point of this?
A gift, in law, means that the original owner of the asset has no rights to that asset once it is given away. That includes rights to rental income on that property otr a right to live there. If the property is gifted with some "reservations of title", then HMRC will apply special anti-avoidance Income Tax rules.
A considered view would be appreciated as going to the local housing authority, the shark of a solicitor who set this up at divorce time and the citizens advice has not produced any consistant answers.
I am stumped.
Thanks Eric,
I thought more questions would arise.
No, no rent has ever been paid, not even a nominal amount.
Some form of trust was set up at the time of the divorce which gave the occupier right to stay. it was anticipated this would be a matter of months as the occupier has been at deaths doors for the past 20 years - she is now 99!
Would she be deemed the beneficial owner from time of divorce settlement? I think this is the case, Citizens Advice disagreed.
Why is she entitled to half the CGT and half rental?
The MIL now owns 100% of this property.
The point of gifting the property is that if she gifts it to us i can allow her to stay in our property, renovate the 'new' flat and turn it into something worth renting/selling.
It truth it seems ridiculous that someone can come into ownership of a property and end up worse off!
As it stands on taking ownership of the flat she loses her housing benefit, now this is someone who has worked all her life, paid full dues and come out into retirement without a pot to piss in because of some very sharp practices of her ex. This happens, we move on.
That housing benefit pays about 50% of the rentable value of the house we 'rent' to her. It has been heavily modified to make it disabled friendly and I simply cannot afford to give her, as much as would want to, a free ride in the property.
To make the best of the property will take a sizeable investment, something she doesn't have and I wont have for at least 12 months.
My view is that the best solution is or her to be rid of the property as tax efficiently as possible, be that assignment to me/us or a straight sell. If it was possible I'd have her move in for 6 months, but I cannot see that as a viable option due to the layout of the block - she'd be a virtual prisoner.
I thought more questions would arise.
No, no rent has ever been paid, not even a nominal amount.
Some form of trust was set up at the time of the divorce which gave the occupier right to stay. it was anticipated this would be a matter of months as the occupier has been at deaths doors for the past 20 years - she is now 99!
Would she be deemed the beneficial owner from time of divorce settlement? I think this is the case, Citizens Advice disagreed.
Why is she entitled to half the CGT and half rental?
The MIL now owns 100% of this property.
The point of gifting the property is that if she gifts it to us i can allow her to stay in our property, renovate the 'new' flat and turn it into something worth renting/selling.
It truth it seems ridiculous that someone can come into ownership of a property and end up worse off!
As it stands on taking ownership of the flat she loses her housing benefit, now this is someone who has worked all her life, paid full dues and come out into retirement without a pot to piss in because of some very sharp practices of her ex. This happens, we move on.
That housing benefit pays about 50% of the rentable value of the house we 'rent' to her. It has been heavily modified to make it disabled friendly and I simply cannot afford to give her, as much as would want to, a free ride in the property.
To make the best of the property will take a sizeable investment, something she doesn't have and I wont have for at least 12 months.
My view is that the best solution is or her to be rid of the property as tax efficiently as possible, be that assignment to me/us or a straight sell. If it was possible I'd have her move in for 6 months, but I cannot see that as a viable option due to the layout of the block - she'd be a virtual prisoner.
davemac250 said:
Thanks Eric,
I thought more questions would arise.
No, no rent has ever been paid, not even a nominal amount.
Some form of trust was set up at the time of the divorce which gave the occupier right to stay. it was anticipated this would be a matter of months as the occupier has been at deaths doors for the past 20 years - she is now 99!
Would she be deemed the beneficial owner from time of divorce settlement? I think this is the case, Citizens Advice disagreed.
Why is she entitled to half the CGT and half rental?
The MIL now owns 100% of this property.
The point of gifting the property is that if she gifts it to us i can allow her to stay in our property, renovate the 'new' flat and turn it into something worth renting/selling.
It truth it seems ridiculous that someone can come into ownership of a property and end up worse off!
As it stands on taking ownership of the flat she loses her housing benefit, now this is someone who has worked all her life, paid full dues and come out into retirement without a pot to piss in because of some very sharp practices of her ex. This happens, we move on.
That housing benefit pays about 50% of the rentable value of the house we 'rent' to her. It has been heavily modified to make it disabled friendly and I simply cannot afford to give her, as much as would want to, a free ride in the property.
To make the best of the property will take a sizeable investment, something she doesn't have and I wont have for at least 12 months.
My view is that the best solution is or her to be rid of the property as tax efficiently as possible, be that assignment to me/us or a straight sell. If it was possible I'd have her move in for 6 months, but I cannot see that as a viable option due to the layout of the block - she'd be a virtual prisoner.
You cannot "gift" an asset and then retain some interest or rights over it. Or at least, if you do, HMRC will want some form of Income Tax to be paid on the "beneficial interest" retained. A gift is a gift. If I give you something, it is no longer mine and I can't use that asset any more as I have no more rights over it. I thought more questions would arise.
No, no rent has ever been paid, not even a nominal amount.
Some form of trust was set up at the time of the divorce which gave the occupier right to stay. it was anticipated this would be a matter of months as the occupier has been at deaths doors for the past 20 years - she is now 99!
Would she be deemed the beneficial owner from time of divorce settlement? I think this is the case, Citizens Advice disagreed.
Why is she entitled to half the CGT and half rental?
The MIL now owns 100% of this property.
The point of gifting the property is that if she gifts it to us i can allow her to stay in our property, renovate the 'new' flat and turn it into something worth renting/selling.
It truth it seems ridiculous that someone can come into ownership of a property and end up worse off!
As it stands on taking ownership of the flat she loses her housing benefit, now this is someone who has worked all her life, paid full dues and come out into retirement without a pot to piss in because of some very sharp practices of her ex. This happens, we move on.
That housing benefit pays about 50% of the rentable value of the house we 'rent' to her. It has been heavily modified to make it disabled friendly and I simply cannot afford to give her, as much as would want to, a free ride in the property.
To make the best of the property will take a sizeable investment, something she doesn't have and I wont have for at least 12 months.
My view is that the best solution is or her to be rid of the property as tax efficiently as possible, be that assignment to me/us or a straight sell. If it was possible I'd have her move in for 6 months, but I cannot see that as a viable option due to the layout of the block - she'd be a virtual prisoner.
As ever, the situation seems to be a lot more complicated than your initial description. The mention of the word "trust" usually means some sort of complex arrangement might already be in place.
At what point did your MIL acquire the 100% ownership i.e. when did the property transfer completely to her name?
Who had legal title to the property before that date?
Eric Mc said:
davemac250 said:
Thanks Eric,
I thought more questions would arise.
No, no rent has ever been paid, not even a nominal amount.
Some form of trust was set up at the time of the divorce which gave the occupier right to stay. it was anticipated this would be a matter of months as the occupier has been at deaths doors for the past 20 years - she is now 99!
Would she be deemed the beneficial owner from time of divorce settlement? I think this is the case, Citizens Advice disagreed.
Why is she entitled to half the CGT and half rental?
The MIL now owns 100% of this property.
The point of gifting the property is that if she gifts it to us i can allow her to stay in our property, renovate the 'new' flat and turn it into something worth renting/selling.
It truth it seems ridiculous that someone can come into ownership of a property and end up worse off!
As it stands on taking ownership of the flat she loses her housing benefit, now this is someone who has worked all her life, paid full dues and come out into retirement without a pot to piss in because of some very sharp practices of her ex. This happens, we move on.
That housing benefit pays about 50% of the rentable value of the house we 'rent' to her. It has been heavily modified to make it disabled friendly and I simply cannot afford to give her, as much as would want to, a free ride in the property.
To make the best of the property will take a sizeable investment, something she doesn't have and I wont have for at least 12 months.
My view is that the best solution is or her to be rid of the property as tax efficiently as possible, be that assignment to me/us or a straight sell. If it was possible I'd have her move in for 6 months, but I cannot see that as a viable option due to the layout of the block - she'd be a virtual prisoner.
You cannot "gift" an asset and then retain some interest or rights over it. Or at least, if you do, HMRC will want some form of Income Tax to be paid on the "beneficial interest" retained. A gift is a gift. If I give you something, it is no longer mine and I can't use that asset any more as I have no more rights over it. I thought more questions would arise.
No, no rent has ever been paid, not even a nominal amount.
Some form of trust was set up at the time of the divorce which gave the occupier right to stay. it was anticipated this would be a matter of months as the occupier has been at deaths doors for the past 20 years - she is now 99!
Would she be deemed the beneficial owner from time of divorce settlement? I think this is the case, Citizens Advice disagreed.
Why is she entitled to half the CGT and half rental?
The MIL now owns 100% of this property.
The point of gifting the property is that if she gifts it to us i can allow her to stay in our property, renovate the 'new' flat and turn it into something worth renting/selling.
It truth it seems ridiculous that someone can come into ownership of a property and end up worse off!
As it stands on taking ownership of the flat she loses her housing benefit, now this is someone who has worked all her life, paid full dues and come out into retirement without a pot to piss in because of some very sharp practices of her ex. This happens, we move on.
That housing benefit pays about 50% of the rentable value of the house we 'rent' to her. It has been heavily modified to make it disabled friendly and I simply cannot afford to give her, as much as would want to, a free ride in the property.
To make the best of the property will take a sizeable investment, something she doesn't have and I wont have for at least 12 months.
My view is that the best solution is or her to be rid of the property as tax efficiently as possible, be that assignment to me/us or a straight sell. If it was possible I'd have her move in for 6 months, but I cannot see that as a viable option due to the layout of the block - she'd be a virtual prisoner.
As ever, the situation seems to be a lot more complicated than your initial description. The mention of the word "trust" usually means some sort of complex arrangement might already be in place.
At what point did your MIL acquire the 100% ownership i.e. when did the property transfer completely to her name?
Who had legal title to the property before that date?
Complex arrangement is an understatement. The word trust has been used by the solicitor who set the arrangement up in the first place, but from what i see it is not a true trust as both an interest in the asset has been retained.
The transfer of the property is on-going, it hasn't been completed yet, i am trying to delay things until I know what is best.
As to who had legal title? That is very grey. It appears on face value (bear in mind I haven't had my hands on the paperwork as the solicitor holds the deeds etc and i am in luxembourg) that legal title was in no mans land between being a joint asset following the divorce to being transferred 100% to the MIL when the occupier moved out.
I am more than willing to pay someone to work out what the hell I can do with this.
Although I did have a thought about her moving in on paper...............
As the occupier was not the owner, WHOEVER holds title at the date of an eventual sale or disposal will be liable to CGT. The problem seems to be working out who or what actually owned the property at specific moments in time. No progress can be made until those specifics are pinned down.
Once that has been sorted out, then some meaningful planning can commence.
As for a straight gift - why would someone want to pass up the oppurtunity to receive potentially hundreds of thousands of pounds in order to escape 18% tax?
Once that has been sorted out, then some meaningful planning can commence.
As for a straight gift - why would someone want to pass up the oppurtunity to receive potentially hundreds of thousands of pounds in order to escape 18% tax?
Edited by Eric Mc on Friday 20th November 10:23
Gassing Station | Finance | Top of Page | What's New | My Stuff