Financial advisor/accountant

Having seen some very useful information on here about financial matters in the past could I ask for some advice please on what I need and how best to find it.

I really struggle with numbers and have been trying to understand tax implications around property buying and selling, gifting of property and inheritance tax. 

I have a small share in a mortgage free property with my mum. She bought it originally and I lived in it for many years paying her rent and improving the house with loft conversion etc.

It’s rented out currently but we’re debating selling it and as I’m an only child I’m in the very lucky position that I stand to inherit it but we’d also like to understand the tax implications of passing it to me now and selling it so capital gains tax liability. Is it just an accountant I need to talk to or a financial advisor? How best to go about finding a good one? Many thanks.

Hi,

You “could” need an Independent Financial Advisor (IFA), not an accountant.

However some things to bear in mind. IFA’s aren’t cheap and you may not have a large enough pot of assets to benefit from their services.

A good IFA should give you a chat for free for 30 minutes to find out if you’re a good fit for each other.

The best way to find a good IFA is ask around friends and colleagues. A bit like finding a builder.

Inheritance Tax is not payable on amounts less than £325k. There are also rules about gifts to you that are given 7 years before death.

Some good clear details on here https://www.gov.uk/inheritance-tax

A bit more clarity on IFA’s https://www.moneysavingexpert.com/savings/best-financial-advisers/

Explains when you may need one and how much it could cost.

Jacob

If there’s an iht liability and you are the sole benefiary, cgt dies with the owner and you could be assented the property on death, ie, you take the property as you are being left it anyway.  There’s no stamp duty in this case, depends if you want it of course.

Worst case is you sell asset, pay cgt, then die and pay iht.

I am not an ifa BTW, loads of tips on mse and probably worth a q chat with a probate specialist.

Best wishes, its a bit of a minefield, budget on 30 Oct doesn’t help as cgt is in the spotlight.

I think I would try an accountant and I would see if you can find a local one who does drop in sessions where you can pay a fee for an hour’s advice.

If this is classed as a second home, then there is likely to be tax due on the increase in value of that property over time.
HMRC will assess any transactions on an “arms length” basis regardless if you purchase it or its gifted.
So the tax liability will be based on its “value” rather than the transaction price
The tax due will be broadly the same in both scenarios.
(hopefully that makes sense)

Depending on the value of your mothers estate it may end up being more tax efficient to wait and for it to be passed via inheritance.

You’ll need to speak to a Tax advisor, who will be able to run you through the specifics.

For tax advice and estate planning I’d be going to an accountant.

I’d join the UK landlords group on Facebook and ask the same question on there or just search some of the older posts.  There’s some really smart helpful people there, some sales people and some absolute cretins but it shouldn’t be too hard to figure out which is which.

Yes as chew says you can’t just put any value on it that suits you, it has to be the true market price.  The district valuer works on behalf of hmrc and if there’s tax due, the value will be scrutinised.

He wouldn’t accept our 3 agency valuations, once we paid for a RICs one, he was happy.

Just sell it now to someone who isn’t going to rent it out.

Thanks all I expect with the value it wouldn’t be worth ifa at this stage so will have a chat with an accountant to get everything clear. Prince John I know where you’re coming from but I think our tenants would be pretty upset if we did that. We’d prefer to give them a years notice and no guarantee it wouldn’t be bought to rent out again, may even become an HMO as we’re in a University city. 

I don’t see what an accountant has to do with this. These are not business accounts outside of PAYE etc.

This is a matter of financial advice. IFA.

And I don’t see why there’s a lower ceiling on being able to seek it.

I’ve a middle/modest income but had excellent IFA advice to help with my last two mortgages – they saved me money over what I’d found myself – and recently enquired about our general pension strategy and was offered a FOC chat. Marchwood IFA in Chichester if you fancy talking to them.

Definitely a job for an IFA.
The view they’re only interested in wealthy people is an outdated one, most are happy to talk to anyone.

Interesting. The reason I wasn’t sure about an IFA apart from several of the replies above was a friend recently had a hundred odd k to do something with and was inquiring with a IFA but upon hearing the amount the ifa wasn’t interested. I will look into Marchwood thanks as I’m not a million miles from Chi.

@myti, some IFA’s do have a specific type of client they deal with, some with a minimum value. But it’s not all of them.

Accountants will help you navigate the tax system, IFAs will help you do something with the proceeds

She bought it originally

It certainly sounds like a second home and it’s owned by your mum (unless you’ve legally bought some of it off her…. living in it or renting it makes no difference)

1) If your mum gives it to you, or sells it, then she will pay CGT on its current value minus what she paid for it (property transfers are only CGT free between spouses).  There are plenty of CGT calculators on the internetz that will give you an idea of what she would pay.

2) If you inherit it from her then you will pay inheritance tax on it (depending upon the total value of the estate)

Accountants will help you navigate the tax system, IFAs will help you do something with the proceeds

This.  My wife has gone through this and AFAIA an IFA is not going to deal with CGT.

(although I’m not so sure about the ‘independent’ bit…. they all have an agenda and are selling you something)

IANAA.  A lot will depend on how recently you or your mum called it a main home.  If it has been a rental property for a while (ie it is a true second home) then she will have to pay CGT but if it was a main home within the last couple of years it might be CGT free.  Also,  is your interest covered by a formal agreement or simply a verbal understanding, as you a formal agreement may make you liable to CGT (but may provide some exemption if it was your main home within the last couple of years)?  And there is probably more to be considered

Apologies OP. Can’t answer your question as I don’t know any good IFAs.

But I will reiterate what a few people above have said ….

I think that if yer maw sells it or gives it to you then there will be a chunk of CGT to pay, whereas if she keeps it and leaves it to you in the will then there won’t be. So well worth considering.

but may provide some exemption if it was your main home within the last couple of year

If the OP was renting it then it can’t be his main home as he’s not the owner.

whereas if she keeps it and leaves it to you in the will then there won’t be.

No…. but there will be the spectre of inheritance tax lurking.

In addition to this there is the problem then of what the OP does with it – if he then decided to sell it, and it had risen in value in the period between inheriting it and selling it, then he would still pay CGT on it (dependent upon the difference in values and his CGT allowance).

I’d be going to a tax accountant that has experience in probate.

You will also want to understand implications of this should your Mum need care from the Council:

https://www.ageuk.org.uk/information-advice/care/paying-for-care/paying-for-a-care-home/deprivation-of-assets/

OP says was renting from his mum but also says has a share in the property, so for dealing with HMRC there is a lot riding on the detail, the documentation and how mum and son have declared their address in the past.

so for dealing with HMRC there is a lot riding on the detail

Indeed.  If the ‘share’ is a real actual thing then it needs to be legally recorded (i.e. in the deeds) otherwise HMRC will not accept it.  If he does legally have a share of the property* then the CGT would be split between him and his mum.

I’m not sure whether how they declared their home address in the past is a factor – I think it’s where their main residence is at the time of the house sale that matters.

* And if the OP does have a legal share in the property and subsequently bought another house then he maybe should have actually paid the higher rate of stamp duty on that property.  This is probably solicitor territory!

If the OP was renting it then it can’t be his main home as he’s not the owner.

He said he does have a share of the ownership

whereas if she keeps it and leaves it to you in the will then there won’t be.

No…. but there will be the spectre of inheritance tax lurking.

Well  obviously. Just as there would be if she sold it and then bequeathed him the cash. But one set of taxes is better than two

In addition to this there is the problem then of what the OP does with it – if he then decided to sell it, and it had risen in value in the period between inheriting it and selling it, then he would still pay CGT on it (dependent upon the difference in values and his CGT allowance).

Hmmm. Not a significant issue. Assuming he doesn’t own another property then this becomes his main home so he won’t pay any CGT on rise in value after he inherits it.

And if he did own another property then the rise on value on that property between death and selling it would likely be trivial compared to the CGT accrued on the joint property in the years he’s been living in it.

I don’t see what an accountant has to do with this. These are not business accounts outside of PAYE etc.

I don’t think you understand what all accountants do!  Certainly some will primarily deal with business accounts but plenty have private clients and advise on tax issues and will even represent you to HMRC.

This is a matter of financial advice. IFA.

But beware… a lot of IFAs are glorified mortage/insurance salesmen – some are genuinely experts in this sort of stuff but some make out to be and then hide behind enagement letters saying “we don’t provide tax advice”.

Assuming he doesn’t own another property

Which we don’t know…. but he’s not renting it now and must be living somewhere.  We’re a bit light on details.

I’m a tax accountant who specialises in private client work. We work closely with both IFA’s and private client solicitors where required.

What initially appears as a straight forward scenario often becomes more complicated once the fact find and overall picture is better understood.

I suggest that your starting point is to make an initial enquiry with the private client tax team at a firm of accountants and take it from there.

You definitely want an account, not a financial advisor. Accountants will have different specialities, but you should be able to find a decent local firm who do tax planning. I would go with someone localish because it’s nice to chat face to face with these sorts of things. Whereabouts in the country are you? Maybe someone can recommend one.

Yikes can of worms much?! I’ve found a local IFA and had a chat about what we need help with. I mentioned the conflicting advice about whether I need an accountant or IFA. They came across really well and are happy to have an initial free meeting in person to discuss and if they can’t help may be able to recommend someone else. Though they seemed to know their stuff about the issue I guess it just comes down to how much they will charge for coming up with the sums for the various options.

Meeting scheduled for after the budget.

It’s definitely a second property and legally I own a 5 percent share this was done by a solicitor several years ago. It’s not likely to be an issue re deprivation of assets baring something catastrophic as this is all planned for separately. Thanks again.