I own a house with my mother but want to buy another home of my own. What are the tax implications?

Q: What are the tax implications of buying a home? I live with my mother in a house that we both own and there is no mortgage. I want to buy my own home but make sure that my mother can continue to live our home.

 

The existing ownership element should not impact on the ability for an individual to purchase a new home that becomes their principle residence. The tax treatment of the new property will fall under the normal rules of a main residence and capital gains tax – a tax levied on profit from the sale of property or an investment – will not need to be paid. However, it would form part of an individual’s estate on death as far as inheritance tax. You could run into problems if you are using the equity in the original house to raise a mortgage on the new property and unfortunately, relying on a lender accepting equity in the original house could be much more problematic.

The more complex tax issues exist with the treatment of the original property.

You should check with the Land Registry how the ownership of the existing property is treated as this may have tax implications.

There are two types of ownership:

1) Joint Tenants. You and your mother would have equal rights to the whole property and the property automatically passes to the other should one die.

2) Tenants in Common. You own different shares of the property and it does not automatically pass to the other should one party die. This means that you or your mother could leave their share of the property to someone else in their will.

In both cases, the element that passes to a survivor could be subject to Inheritance Tax if the value is above the NIL rate, which is currently £325,000.

If your mother occupies the full house (your share as well as hers), the benefit that she receives could also be subject to Inheritance Tax, so careful planning is needed. She could avoid the Inheritance Tax charge if she paid rent to you.

Your mother’s element of the property would not be subject to Capital Gains Tax as it is her primary residence, but your share will be subject to Capital Gains Tax. You could apply for “final period relief” which would allow Capital Gains not to accrue until after 18 months of you moving to your new residence.

You also need to consider what may happen if your mother needs local authority support with long term care. If she needs to move to a nursing home, the local authority could put a charge against the existing home and her assets. This is where who owns what is crucial as the local authority could force the sale of the property to pay for her care.

The above is based on limited information and should not be deemed to be specific advice, as this can only be given when working with knowledge of the full circumstances.

Pierre Coussey MCSI, APFS, IMC
Chartered Wealth Manager & Chartered Financial Planner
Bond Wealth Management Ltd

 

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