Q My partner and I have been living in his widowed mother’s house for the last four years while waiting for his divorce settlement to be finalised. This has now happened and we are in a position to buy a house.
His mother, aged 81, has been living with her disabled daughter for a few years, and before we moved into her house it was rented out.
We would love to buy the house from his mother and have had it valued at approximately £220,000. As my partner has two sisters, his mother would like the value of the house split three ways between them. We had thought to pay the two-thirds to his mother, which would be his sisters’ share to be given to them immediately or upon her death, as then we could buy the house outright without taking out a mortgage as we are both in our mid-50s.
My partner’s parents bought the house in the early 1950s. I do not know how much the rest of her estate is worth. How would capital gains tax and inheritance tax affect this situation? We are trying to find out as much as we can before we make a decision whether to buy this house or look for another, possibly cheaper, property to buy. EP
A The fact that your partner’s parents bought the house in the 1950s will have no bearing on any future inheritance tax (IHT) bill. This will be worked out on the value of your partner’s mother’s estate on her death (taking into account any gifts in the seven years before that) and no IHT will be payable if the estate is worth less than £325,000 (for deaths occurring in the 2012-13 tax year). Nor will the value of the house in the 1950s have any relevance for capital gains tax (CGT), as the price your parents paid for the property (its acquisition cost for the purposes of the CGT calculation) will be taken to be its value on 31 March 1982.
How much CGT will have to be paid depends on how long the property has been let for (which includes your time in the property) and how long it was your partner’s parents’ main home (more information on this is available in Help Sheet 283 the Revenue). If a CGT bill is payable by your partner’s mother, it will be for the same amount, whether she sells the property at a reduced price to you and your partner or sells it on the open market.
If you partner’s mother wants to sell the property and give your partner and his sisters an equal share of the proceeds, the simplest thing to do would be to sell it to the highest bidder on the open market. But if you are desperate to buy it (rather than a cheaper property somewhere else), the fairest thing to do would be to pay the money to your partner’s two sisters directly, rather than wait for your partner’s mother’s death for them to get the money.
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