Capital gains & inheritance tax advice needed please

LC_KB

Hi

I am exploring the option of selling my house to move back into my family home and would appreciate some feedback.

I currently own my home which I owe 150k on, I could sell it for 300-350k.

The plan would be to spend 100k on building a nanny flat for my parents and I move into the main house.

Their home is worth approx 400-450k.

What is the best way to go legally about this regarding CGT and inheritance tax.

Thanks

3DataModem

So selling your home has no tax implications, as it was your home. You owe 150k, you sell for 350k, you keep the 200k (less solicitor and EA fees) tax free. Easy.

If you use this to upgrade your parents home then move in, it is a little more complicated.

Scenario 1: you have effectively "gifted" them 100k, or better, 50k each. Technically they have to pay about 3,300 tax on this gift, each. You have no recourse for this money. No entitlement to live with them. No entitlement to get it when they die.

Scenario 2: you pay the builder yourself. Technically this is the same outcome as the above, as you have effectively gifted 50k to each of your parents. You have no recourse for this money. No entitlement to live with them. No entitlement to get it when they die.

Scenario 3: there are some specific payments to older parents that qualify as "payments for living costs" that don't attract CAT (aka gift tax)… it might be easier to structure how you contribute to the upgrade by paying other costs for your parents and then THEY pay for the upgrade (bills, car, etc). You still have no recourse for this money. No entitlement to live with them. No entitlement to get it when they die.

Scenario 4: you could in theory loan your parents the 100k. You charge them say 4% per annum, which you then gift back to them each year (so they don't actually pay you at all). So you charge them 2k each in interest and gift it back to them, and this "gift" falls under the 3k per annum CAT exemption, so there is no tax implications. Then when they die, the 100k loan is repaid to you out of their estate. Note; moving back to the family home and living there is generally not treated as a gift from a parent to a child, so has no tax implications.

Scenario 5: you buy the house from your parents and let them live with you.

The big questions you need to consider apart from tax are

• Do you have any siblings. If not, things are obviously simpler. If so, things are a lot more complex down the line.
• What happens when your parents need special care, and e.g. need to sell their home or need to use it for the fair deal.
• What happens when another sibling wants to move home.

And of course the thing that people pretend won't happen, but does

• If one parent dies, will the other one finds and moves in a new partner.
• If the parents decide to move back into the big house in their home, as they are entitled to do, and put you in the garden room. Or put you out.
• The parents (or one parents) decides to sell their house, or is forced to somehow.

This is why scenario 4 - the loan - is probably the easiest way to do it, as it protects your 100k, more or less, as long as you do it somewhat formally.

This is why scenario 5 - buying the house - is the most robust, as it gives you control in any of the adverse circumstances (siblings, step-parents, indigence) above.

And for god sake don't think "ah we're family, it'll be grand."