Watch out for sting in the tail for shared ownership with family members
Before going into shared ownership with any family members, just make sure you are not setting yourself a trap for later on - as one family nearly found out.
Reading about a recent case in the Times, Mr and Mrs Cargill owned their family home in equal shares with their son, who was aged 18 at the time. With the son now grown up, the Cargills, now in their late 60s, are questioning whether there would be any tax implications of having a three-way ownership of the £500,000 house. The son moved out of the house in 2009 and Mr Cargill is left wondering if he should now remove his son’s name from the deeds.
In the article, he states “if my wife decides to sell the property after I die, my son and my wife could potentially face a high inheritance tax bill. Plus, as it is not his home, he may have to pay Capital Gains Tax on his share - so it makes sense to remove my son’s name from the deeds.”
However, Mr Cargill needn’t worry. As Mrs Cargill and their son will inherit the share of the property, there will be no tax bill to pay, because Mrs Cargill is covered by the spousal exemption. If the share passed partly to the son, this should also be covered by the Nil Rate band - the threshold upon which no inheritance tax is paid - which currently stands at £325,000.
Mr Cargill’s son would potentially have to worry about paying Capital Gains Tax if the house was sold, and the property made a profit, because it would fall under any personal possessions, second homes, investment properties, business assets or shares that form part of Mr Cargill’s estate. Mrs Cargill’s investment, however, would be exempt because it is her own home.
There could be further complications in the event of divorce, incapacity or funding for care. It could be very difficult to value an equal share in the property, however, at least if Mr and Mrs Cargill chose to buy out their son, at least they would benefit from the Government’s current Stamp Duty holiday.
If you would like some further advice relating to inheritance, wills and lasting powers of attorney, contact Downs Solicitors to see how we can help.