Since 1982, my sister and I have been joint owners of the house in which we both live. In our wills each is the other’s heir. I assume that at the first death, half the market value of the house will be included in the estate valuation for IHT purposes. If we were each to sign a document which gave the other the right to live in the house rent-free for life, would this affect the estate valuation at the first death (given that the asset in the estate now consisted of a half share of a house with a rent-free lifetime occupant)? Would there be CGT implications (given that the house is the only home of each of us)?

The tax expert we consulted has assumed that you and your sister are tenants in common (each owns half), rather than joint tenants (survivor takes all). Given this, he doesn’t think your suggested course of action will help; indeed he believes it could make the situation worse. The document that you are proposing each signs could create an “interest in possession” for the other. That would mean the underlying value of that interest would be treated as being comprised in your estate, explains John Whiting of the Chartered Institute of Taxation. He says you would be treated as owning a half share of the house, devalued slightly, because of the right of the other to live in it, plus the underlying value of the right to live. If for example, your house is worth £600,000, it may be that instead of each of you owning a half share worth £300,000, you have in some way created interests worth more than this, says Whiting. He suggests you consider the other assets that you and your sister own and what plans you have for leaving the values in your estate to other relatives or friends. You may prefer to grant the right to occupy the house to the survivor in your wills, which could be the most effective route to plan for an IHT bill on half the house and build up funds accordingly in a life policy, he says. However, that does not get away from the potential for an IHT hit on the property for each of your deaths. Whiting says the only small consolation is that CGT should not be a factor as it is going to be regarded as your main residence and thus exempt from CGT if you dispose of it during life (and CGT doesn’t apply on death).

Frozen out of US mutual funds

Having lived in the US for a while, I’ve invested in US mutual funds for a number of years. Now I’m back in the UK my broker has frozen my investments in these funds, only allowing me to sell the shares but not to add to them, as I’m not a US resident. With the US having numerous investors in equities and bonds, why the exception for mutual funds? I’m a Dutch national and UK resident, have a US social security number but no longer pay US taxes.

Your tax status is likely to be the source of your problems, thinks Christine Ross, head of financial planning at SG Hambros, the private bank. As you no longer live in the US, you may have become a non-resident alien (NRA) and some funds are not registered to sell to NRAs. Your problem may be that you have yet to complete a “W-8BEN” form (certificate of foreign status). This will confirm your domicile and your residency and will make it clear to a fund provider or adviser how much tax will need to be withheld. Going forward, a more simple approach might be to consider other non-US registered investment vehicles, or individual equities, for your US equity exposure.

A plot to avoid capital gains tax

We have recently retired and wish to downsize or move abroad. We have lived in our current property since 1980 and have just been granted outline planning permission for residential development. We have a developer interested in purchasing the property but the residence (our home) will have to be demolished. Would we be liable for capital gains tax on the sale of the site (one-third of an acre) to the developer?

The gain on the sale of your principal private residence (PPR) is generally exempt for capital gains tax purposes, says Glenn Martin, senior tax manager with Moore Stephens. This can include grounds of up to one acre, or larger if required for the reasonable enjoyment of the property. However, if you acquired the property for the purpose of making a profit from its disposal, then the PPR exemption is lost. Martin adds that Revenue and Customs can take the view that if you incur expenditure obtaining planning permission with a view to making a capital gain from selling the property, the PPR exemption can be partly or wholly lost. From the information you have provided, Martin concludes you have incurred expenditure in obtaining planning consent. Hence, the sale of the land for building purposes could give rise to a capital gain as the PPR exemption would not apply to the increase in the value of the site resulting from the granting of planning permission. If you can wait, Martin advises that you could allow the planning permission to lapse and then sell the property to the developer who would then apply for planning permission. This should not restrict your ability to claim full PPR exemption on the sale. As this is a complex area, you should seek further advice.