Wife dying and CGT issue with a remortgage?

by Readers Question

13:36 PM, 8th April 2016
About 3 years ago

Wife dying and CGT issue with a remortgage?

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Wife dying and CGT issue with a remortgage?

My wife is terminally ill, she has weeks or a few months to live. We have a BTL property that has equity around 200k and I want to re-mortgage it to get the money out, 75% say, (no time to sell and I don’t want to do that) and she can use half to do bucket list and pass rest onto grandkids. I will invest my half share into property again at a later date probably.CGT

As there is equity, there is a capital gain and if title is kept in joint names, then her CGT dies with her and so half of the gain would mean I inherit at ‘todays’ value, with only future gains for her half to be taxable (CGT).

We have lived separately for last 10 years, but financially joined with this and another house (10k negative equity), I think her credit file would not look good, but mine is quite good and therefore I will try mortgage in my name only, but it seems that this would change the title deed at Land Registry to my name only and therefore would activate a CGT bill on her part now, instead of having the CGT die when she dies.

She currently lives in rented accommodation and I live with my brother.

Can anyone help with advise please.

I need to move on this straight away.

Phil



Comments

Jon Pipllman

16:30 PM, 9th April 2016
About 3 years ago

Sorry to hear about this situation.

I am not sure a remortgage is the right thing to do here. It might be, but on the information you have supplied, I don't think that is certain.

As an alternative, spend a few hundred pounds (part of the money you would pay in mortgage fees) to speak, on Monday, to a specialist inheritance tax solicitor before you do anything else.

Ask questions along these lines.

Why would a liability for CGT arise if the property is not being sold?

There is no IHT if your wife leaves her estate to you.

If she is intending to leave £50k (half of her half of the equity) to grandkids in her will, then there may be inheritance tax to pay on that.

Maybe it is better that she leaves her entire estate to you (no iht at all on wife to husband inheritance) and that you organise a gift to the grandkids later. Broadly, if you live for 7 years from the date of the gift, there is no IHT on that then either.

Given the timeframes you are talking about, is there another way that you can quickly find the £50k for her to get on with ticking things off her bucket list? I am sure 'apply for a mortgage' or 'worry about CGT / IHT' don't feature anywhere near the top of said list.

Do not regard this information as accurate. Seek properly qualified, insured advice. Quickly.

Phil support

15:25 PM, 15th April 2016
About 3 years ago

Thanks for your input and response Jon.
What I am finding difficult is, do I need advice from an accountant or a tax solicitor, becasue the problem really encompasses both parties and neither party would neccesarlily be expert enough to answer the question, or my problem, fully. My next step, as you recommend is to talk to a legal tax advisor, not an accountant tax advisor!! You see, it looks like they both can be called the same name.

Puzzler

15:36 PM, 15th April 2016
About 3 years ago

Firstly, my heartfelt sympathy, even though you're separated this must be a very difficult time

Remortgaging can take as along as selling. How large will her estate be? IHT is only payable above £325000. No CGT on death.

Are you joint owners? or tenants in common?

If the latter are you the beneficiary?

Might be simpler to take out a personal loan, rates are pretty low right now and you could pay it back with a remortgage when it less urgent

Phil support

17:39 PM, 15th April 2016
About 3 years ago

Reply to the comment left by "Puzzler " at "15/04/2016 - 15:36":

Thanks for your kind words Puzzler,

We still meet up a few times a year, so its not like we dont see each other any more.

Her estate would basically be only the 2 houeses, one of which is Minus 10k equity and the other is worth 325k and bought for 198k, so thats 117k positive equity combined.
I wanted to remortgage in my name only, but not sure of the consequences as far as IHT or CGT for either of us. the current morgage is 90k left, so would get a remortgage of 75% (243k).

We are joint tenants and both names are on the current nmortgages. Ther is no will at the moment, but I think not needed as Joint tenants?

When I applied for a loan 6 months ago, they asked for SA302 info, and since I am self employed and my expenses were high, there is only a small profit - like a few thousand, so I didnt pursue that loan as I am sure it would have been turned down.

Puzzler

18:53 PM, 16th April 2016
About 3 years ago

I think you're mixing capital appreciation with equity, the capital gain is 117K which would not be payable on death, IT would be payable but I am not sure from your figures how much the estate is worth.

The £325K house has £235K equity (based on a £90k mortgage). You can work out the same for the other property. If the value minus the mortgage is over £90k then IT would be payable, if below then not.

If joint it will come to you as you say, will or not.

Who lives in the second house (with the -£10k equity?)

Phil support

19:41 PM, 16th April 2016
About 3 years ago

Reply to the comment left by "Puzzler " at "16/04/2016 - 18:53":

Hi Puzzler,
Both houses are currently rented out BTL. Some figures:
House A: Was dilapidated and needed work. bought for 70k, had a 25k grant, plus 35k from us (as a re-mortgage), House now worth about 80k.

House B: bought for 195k, value now 235k
Both houses have a morgage left of 90k each. So capital gain on these figures is about 150k. The estate is worth 80k+325k=405k . . . . so thats shared between us (202.5k each).

I wanted to re-mortgage the 325k property to get the euiqty gain out, but I would have to do it in my name only (wife may have a bad credit file), so the question is: if I did re-mortgage the title deeds would then be in my name and therefore HMRC would know or assume wife 'sold' or 'relinquished her share', or whatever and would this then become taxable from her point of view (or mine) for IHT or CGT. I would then give her some of the equity I released to use for herself and some of the rest of the equity (up to her half share) I would pass on to grand kinds after she passes or even before that.

Puzzler

13:38 PM, 17th April 2016
About 3 years ago

So, House A equity = £-10K; house B £235K, you have to deduct the mortgages for IHT, so none would be payable. Not sure I follow your figures for House A as it looks to me like it's not in negative but positive equity.

CGT would be payable on House B (as you would have to buy her half) unless it is a PPR. As both of you are renting that might be the case.

What then happens to her half of the equity would not then necessarily be up to you as it would be paid to her or her estate.

What makes you think you would get a mortgage now, when you wouldn't a while back? My experience is that remortagaging is no quicker than selling (once an offer is in).


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