Selling two sole-owned properties: permitted strategy for estate planning and to minimise CGT liability?

4(T)

LE
My mother (in her 80s) owns a small flat in London, which she currently lets. She herself lives in a tiny bungalow outside of London (i.e. her primary residence).

She (a) has been unhappy with her living situation for many years and would rather liquidate the two properties and buy somewhere nicer to live, and (b), wishes to pass a chunk of the equity onto her grandson (my nephew) to help pay school fees (he is 16 so the expenditure is within next two years).


It seems to me that there are/were two solutions:

1. Sell her primary residence (where she currently lives), move into her second property which is now her sole property. Wait x months for CGT liability to diminish, then sell that property. Resulting pot of cash can then be redistributed as she sees fit.

- How long does she have to wait to sell the second property without incurring CGT?

2. Gift her primary residence (where she currently lives) to her daughter/grandson, for them to liquidate in due course. Move to the second property; sell if and when CGT liability goes away. Survive/avoid care home for seven years so that the gift "sticks".

- When can the "gift" be sold on?
- Is it still "seven years" that a donor has to survive for the gift to avoid attracting tax?
- If a need for state funded care arises in the future after her remaining assets are expended, does the gift get clawed back by the state, as with other estate disposals?



Has anyone been through this sort of manoeuvre recently, or has relevant professional knowledge of current tax rules (gifts and/or CGT)?

Although the normal answer would be "go and speak to a tax advisor", a problem in this case is that i am not able to help or take part due to a family schism. My mother herself has an unerring ability to seek out complete charlatans and is routinely mis-advised or even swindled in such matters. To complicate matters she is most likely in early stages of dementia and won't act unless someone grips her.

I basically need to gather some facts, and then send them over to my sister who is to be the beneficiary of the estate but who is herself too idle to step up to the mark and deal with the situation. (Families, eh...).
 
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4(T)

LE
Bump.

No-one?

Blimey, you must all have very well-ordered lives. I was under the impression that on Arrse we had property tycoons, tax specialists, evil BTL landlords, HMRC goons, people doing probates, wills and estate disposals.

I'd go to mty local accountancy firm, but their advice is even less reliable than that of random anonymous forum members...
 

BiscuitsAB

LE
Moderator
Mate your biggest problem would be that there is the possibility of early stages of dementia. Having worked with clients in a similar situation it is and im being honest here "A Fcking nightmare"

I'd suggest that under these circumstances any planning stands to be compromised by your mum who may take it into her mind to do things.

My first advice is to get lasting powers of attourney in place in favour of your sister and then hand the whole bag of problems over to her to sort out, and step the fcuk away for the benefit of your own sanity.
 

FHA

LE
Further to what Biscuits said, is your sister already Power of Attorney?
You said she’s estate beneficiary but that doesn’t bring any legal authority.
POA has to be sorted while your mum still has “capacity”.*



*(Sorry if it’s sucking eggs there, I don’t doubt you’ve combed every aspect of this.)


Sent from my iPhone using Tapatalk
 
Could you and your sister jointly get POA over your mother's affairs, as it sounds like even if you gather all the facts together and what needs doing, your sister may still not step up to the plate.
The CGT on the second home could be quite hefty, obviously depending on how long she lives there, has she lived there previously and for how long etc. She would have to prove residence as well so get straight on the electoral roll, utility bills and the rest.
The seven year rule still applies on gifts to completely avoid IHT but above £3,000 the gift may count towards income for the recipient and taxed as such.
Caveat the above in my capacity as internet bloke, but been looking into similar stuff for my Dad who lives in Spain.
 
I might be well out of date, but if she was declaring the earnings and paying tax on those earnings (rent) then there will be no CGT on the second property. However if not, she would be eligible for CGT up to 40% when she comes to sell the property, even if all the money was to go into a primary residence or she sold it as her primary residence.

Can't escape tax!

With careful accounting you can greatly reduce the amount of tax you pay on the rental property, (a lot of things that you can claim for, maintenance costs, travel, repairs etc).
 
A good move, depending on your morals, is to have all your mothers accounts made into joint accounts with you or your sister as the other name. This means that the money bypasses the probate route and becomes "yours" after her death. There is a lot of room for someone with low morals just to keep the money as opposed to using it fulfil your mother's wishes/ intentions.

We found out this my accident when my MIL passed away. My wife was named as joint holder and it makes life a lot easier, but as ever ,has caused much gnashing of teeth by other family members, who want to get there hands on the money. My wife knows what her mother's wishes were and what it says in the will and will not be pushed around.
 

4(T)

LE
A good move, depending on your morals, is to have all your mothers accounts made into joint accounts with you or your sister as the other name. This means that the money bypasses the probate route and becomes "yours" after her death. There is a lot of room for someone with low morals just to keep the money as opposed to using it fulfil your mother's wishes/ intentions.

We found out this my accident when my MIL passed away. My wife was named as joint holder and it makes life a lot easier, but as ever ,has caused much gnashing of teeth by other family members, who want to get there hands on the money. My wife knows what her mother's wishes were and what it says in the will and will not be pushed around.

Thats exactly the situation I have with my father, and which is now part of a bitter schism with my mother & sister. Its also highlighted a nasty trap in the UK LPoA system.

Over the past fifteen years or so he progressively abandoned his affairs for me to sort out for him. There was no request or master plan - I simply reacted and helped out as a dutiful son whenever something became too complicated for him. As part of this I became co-signatory on his bank accounts, as well as PoA and executor under Spanish law for the place he lived in in Spain.

By the time he became stricken with Alzheimer's (masked for a long time because he some sort of Aspergers-type character anyway), I was already in complete control of his affairs in UK and in Spain. Up to this point I'd never touched a penny of any of his cash in his/our accounts - why would I?

Now that he is living in my home and I've had to abandon my life and act as full-time carer, I've naturally used some of his cash and pension income to adapt his living quarters and provide for his care & maintenance (and OAPs are extremely expensive to look after - heating, washing, pissed carpets, etc and so on).

This has led to a bitter mythology from said sister/mother that I've somehow looted all his money and robbed her of her rightful inheritance, etc. Actually the reverse is true - not only have I very carefully budgeted his costs, but I've suffered catastrophic loss of job and income in order to keep him out of a care home for as long as possible. I'm effectively subsidising the estate (and the State).

My sister is also under the delusion that there will be an estate to divvy up. Probably like many people in UK, she does not realise that if a parent goes into a care home, then effectively their entire estate will be consumed by the fees and that there will therefore be no inheritance pot of gold.

This is of course why stuff has to be gifted away by parents a decade or so before dementia and/or care home hits,

Now comes the nasty UK LPoA trap: once you sign a UK LPoA, you can no longer make any disbursements from the dependant's assets other than that required for their personal upkeep. Anything you do disburse may leave you liable to be sued for its return by the Office of the Public Guardian.

Effectively, then, I can no longer carry out my father's wishes or make considered judgements on his behalf. E.g. as mentioned in my OP, my sister wants a big chunk of cash to pay her son's school fees. Unfortunately, with the best will in the world, I cannot pass over some of my father's cash because it is now locked in by the LPoA laws.

I think people really underestimate just how intrusive and confiscatory the UK tax and welfare system is!
 
Selling your home - main residence, in which you have always lived - is exempt from CGT.
If she them moves into the property she currently lets out, that then becomes her main residence and become exempt from future CGT from that point.

If she's had the place for ten years prior to it becoming her main residence and she disposes of it in another ten years, CGT will be due of half of the gain. There may be another 18 months added on as tax free, I'm a bit pushed for time but this link should help.


And to calculate any CGT due:

 

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