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Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My mother has lived in a large valuable house for 35 years.

Resolved Question:

My mother has lived in a large valuable house for 35 years. She now suffers from Alzheimers disease. I would like to purchase the house and ideally build a garage block/granny annexe in the garden. Restrictive covenants means this cannot be on a separate title. If my mother was to pay full market rent for the annexe would I be caught by POAT?

I will fund this myself so as to ensure that there is no tainting of funds.
Submitted: 1 year ago.
Category: UK Tax
Expert:  Tony Tax replied 1 year ago.
Hi.

Will you be paying your mother the full market price for the house?
Customer: replied 1 year ago.

Yes I have valuation for house and there are recent sales near by

Customer: replied 1 year ago.

Assume house is worth 1.5 million. Cost to build annexe say 100k. Monthly rental 1.25k

Expert:  Tony Tax replied 1 year ago.
Thanks.

Leave this with me while I draft my answer.
Customer: replied 1 year ago.

Will do


 


Thank you

Expert:  Tony Tax replied 1 year ago.
Hi again.

Given that you will be paying the full market value for the property which means that your mother's estate will not be diminished in any way, there can be no possibility of a charge under the pre-owned asset tax rules. There will also be no gift for Inheritance Tax purposes as there will be no element of gift. Assuming the monthly rental of £1,250 is the market rate, that effectively acts as a safety net in case of a dispute with HMRC over the price paid for the property.

I hope this helps but let me know if you have any further questions.
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14196
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
Tony Tax and 2 other UK Tax Specialists are ready to help you
Customer: replied 1 year ago.

Just to clarify the rental value is for the annexe rather than the house which would be say 6,250.


 


I am therefore assuming that capital gains would be payable on the annexe based on 1250/(6250+1250) adjusted for time annexe is used


 

Expert:  Tony Tax replied 1 year ago.
Previously Owned Asset Tax and the Gifts With Reservation Rules exist to counter "artificial" gifts made in an attempt to avoid Inheritance Tax. There will be no avoidance of IHT in your mother's case as you are paying the open market value for your mother's home so there is no element of gift which is crucial for either the POAT or GWR rules to apply. Since your mother's estate will not be reduced in value for IHT purposes, the POAT and GWR rules do not apply. There is probably no need to charge a rent for the annexe.

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