House for my mother

[Alison James]

About 30 years ago when I was living at home my father lost his job and so I purchased their small terraced house from them. I think I paid about £20k for it. They paid their mortgage off, which was, I think about £5k and spent or kept the rest. I paid all of the bills but I did not pay for my keep. (board)I took a mortgage out to buy it from them but this was paid off by the time I moved out. I regarded paying the mortgage and bills as my board, so always regarded the house as their house, and not mine.
My job involved quite alot of travelling so I lived at home until I was 28, by which time the mortgage was paid off. The house was worth about £60k at that time. They continued to pay the bills when I moved out.
My father died about 8 years ago and my mother lives there alone now.
I live too far away from her to visit daily so she may have to go into a home soon and she will not move in with me.
Two questions really.
1. Will I have to pay capital gains tax if I sell it.
2. If she needs means tested care, will the house be part of her estate? (not really a tax question I know)

[Gordon999]

If you have bought the house 30 years ago with a mortgage ( paid by you) and the house is registered at Land Registry in your own name, the property should be legally yours.

After the property has been sold, you will get exemption to CGT on the gain for the period of your owner occupier residence plus a further 3 years.

[Alison James]

Thanks for this.
So I will pay capital gains tax, but if mum has to go into a home, it will not be hers?
Does that apply even though we have always regarded as this as mums and dads, and they even refer to this in their wills.

[TaxationPete]

It is not a case of 'regarding' it is a question of fact. The property is in 'your' name You do not detail when you left the property. I would read CG65550 on the HMRC web site in case it applies to you. You may have to provide the dates and details and submit them to HMRC to see if they will accept DRR. Regards Peter

[Thompsons]

There are two types of ownership that you must consider in this case.
1. Legal ownership (ie who is on the deeds)
2. Beneficial ownership (ie who is entitled to the proceeds if sold)
It is obvious that you have legal ownership of the property or else you would not have been given a mortgage.
However, if your mum and dad had beneficial ownership, and they were entitled to the proceeds on sale, then this would result in two things for these purposes.
1. There would be no capital gain as it would be covered by PPR and
2. It would form part of mums estate for means testing.
It sounds to me that mum has beneficial ownership, but to find this out for sure, you would need to speak to the solicitors who dealt with the sale/purchase. There would likely have been two solicitors involved. One for you and one for your parents. One solicitor would not have been allowed to act for you both. They will tell you whether your parents retained beneficial ownership, and the mortgage repayments and bills payments were in lieu of board. The fact that what you provided to your parents was probably in excess of what would be normal board is irrelevant. You simply got a bad bargain. Often purchases like this are structured in a way so that the parents would retain beneficial ownership which would protect their interests if you became bankrupt, or to prevent the house being regarded as an asset in the event that you married and divorced.
If instead you retained beneficial ownership and the property was to remain in your estate, then provided you provided the house to your parents before 5 April 1988, the whole of the gain would be covered by the dependant’s person’s exemption.
You really need to speak to the solicitors involved to establish precisely how the purchase was structured.

[Alison James]

Thanks for these replies.

Often purchases like this are structured in a way so that the parents would retain beneficial ownership which would protect their interests if you became bankrupt, or to prevent the house being regarded as an asset in the event that you married and divorced.

Yes, now you mention it, there was some talk of that because I was thinking of starting my own business at the time.
We did have two solicitors because the one we normally use said he could not do both the sale and purchase.
Will speak to them both.

[TaxationPete]

Very important that you check regarding the beneficial ownership of the property. However a rock and a hard place comes to mind. If there is a Trust document that gave beneficial interest to your parents then if Mum goes into care the LA will take the house as part of her estate. If you are the legal owner and beneficiary then you may have a CGT liability which may be better for you. Regards Peter

[Alison James]

Sorry for appearing thick, but does it mean that the house is in a trust if mum has beneficial ownership? Does it mean it is mine at a certain age?
You also said that if I am the legal owner and beneficiary I would pay capital gains tax. Can I not claim for dependants residents relief.

I have telephoned the solicitors involved and they are getting the papers for me. Both say that they are in a different location because of space and it will take a few days.
Also, you asked when I moved out. Does it make a difference to dependants relatives relief how long I lived there?
One agian, many thanks.

[Thompsons]

From what you say, I do not think there is a trust document because you would have had to inform HMRC and there would have been tax returns to complete. In any evernt,if there was a trust it would say something like “house is in trust for Mr and Mrs AJ for life (or until some specified date) and thereafter to AJ” If any beneficiary of the trust lives in the property as their PPR then that PPR extends to the trust.
However, beneficial ownership can differ from legal ownership even if there was no trust. So mum could still have beneficial ownership with you as legal owner. It depends how the purchase was structured. If you think that if you became bankrupt the house would not form part of your estate, then it is likely that this was how it was structured at the outset.
It makes no difference to dependant’s relatives relief if you lived there or not, if you provided the property before 5 April 1988. So yes, if you are in fact the beneficial owner, you could claim the relief.
If mum is beneficial owner, there would be no CGT because this would be covered by PPR but it would form part of her estate for means testing.
If you are beneficial owner, then you could claim dependants relatives relief and the house would not form part of her estate. This would obviously be the best outcome, but you will have to check with your solicitor to see how the house is held.