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Hi, I am living in a house that my wife and her sister jointly…

Hi, I am living in a...

Hi,

I am living in a house that my wife and her sister jointly own.

I will be receiving inheritance from my parents to form a potentially exempt transfer in 7 years.

If I give some of this money to my sister-in-law to buy her flat in her own name which she moves into; and then my wife and sister-in-law sell their current residence so my wife and I can buy a larger property (effectively paying back what I had loaned her), will their be any unforeseen tax implications as long as it is sold within 3 years (to be exempt from CGT)?

I'm in particular thinking about capital gains tax or issues with inheritance tax. I am also thinking to proceed in this manner rather than buying out my sister-in-law so as to avoid stamp duty land tax.

I hope this is clear enough and I would like a full and thorough answer and evaluation please as this is very important.

Thanks,
Kerry

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Answered in 3 minutes by:

1/5/2013

UK Tax Professional: TaxVince, Accountant replied 10 years ago

TaxVince, Accountant

Category: UK Tax

Satisfied Customers: 975

Experience: Chartered Accountant >20 years + Qualified IFA

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TaxVince :

Hi there

TaxVince :

Thanks for the question.

TaxVince :

As there seem to be a couple of issues in the question, i shall try to address them one at a time...if i miss something please let me know.

TaxVince :

1. Inheritance from Parents

Regarding this money from parents, you are right that this forms a potentially exempt transfer and as long as your parents live for 7 years after the transfer/gift - then there is no inheritance tax (IHT) on your parents' estate. If they die within 7 years of giving you the cash then the cash is included as part of their estate and IHT levied (at a reduced rate).

TaxVince :

2. Sale of current house

Since your wife and her sister both own the property and live in the property, then there is no capital gains tax (cgt) on disposal of the house (if they dont own any other property). Hence selling this property will not result in any cgt.

TaxVince :

This is relevent if both your wife and sister are still living in the house Or if they move out of the house and still sell the house within 3 years. This is because cgt on one.s main home is given on the time one lives in the house plus additional 3 years.

Therefore if your sister in law moves out before the sale to buy a new house and the house is sold within 3 years there is no cgt. If the house is sold after 3 years of moving out then her portion of capital gains relating to the period from "after 3 years" to "time of sale" is taxed. The same applies to your wife, if you move to another property and the house is sold within 3 years, then there is no cgt. IF the house is sold after 3 years of moving out, then your wife will pay cgt on the gain on her share for the period after the 3 years to time of sale.

TaxVince :

Should your wife or sister move out of the house to buy another property and end up owning two properties at the same time, HMRC require that they nominate the main house for "main residence relief" within 2 years of acquiring the second property.

There are are no other tax issues to be concerned.

TaxVince :

Let me know if you are fully answered. If still in doubt please drop me a message.

As you seem to be offline now, i will log off and wait to hear from you. Could i also remind you to not forget to rate my service.

TaxVince :

Regards

Customer: Thanks for the answer, just a couple of queries:

Customer: 8£./9£/:

Customer: presumably loaning my inheritance money to my sister in law does not have any implications or effect it being a PET? Also if I decided to buy my sister in laws share of the current house instead presumably I would have to pay SDLT?

TaxVince :

Thanks for the reply. Sorry was away.

TaxVince :

Loaning your money does not have any tax implications. IF you are earning interest on the loan then the interest income is included on your tax return, otherwise there are no tax implications.

TaxVince :

When you purchase your sister in law, there is SDLT like any other purchase of property.

TaxVince :

See rates HERE.

TaxVince, Accountant

Category: UK Tax

Satisfied Customers: 975

Experience: Chartered Accountant >20 years + Qualified IFA

Verified

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