Second Property Sale Tax Liability

amsquared

It's a bit complicated. My wife is wondering what the CGT or other tax liability is on the sale of her father's second property. Briefly the history is as follows:

My wife's father and mother bought a second property in 1978 for approximately £25,000. They have never lived in this flat. Between 1978 and 1984 the property was let to tenants.

In 1984 when my wife's brother got married he was allowed to occupy the property at zero rent and is still living in the flat.

In 2001 a draw-down joint mortgage (the mortgage was in 3 names - mother, father and son) of £40,000 was taken out on the property. The bank insisted that the son was named on the deeds so he effectively has a one third ownership of the property. Two thirds remaining with his father and mother. The mortgage has been paid jointly until earlier this year when his mother died and the son agreed to pay the full mortgage himself. The split of ownership is now one third son and 2 thirds father, as father has inherited his mother's share.

The house is currently worth c£115,000. They now want to sell the house because the son wants to move to a larger property. My wife's concern is that her father may be liable to pay a large amount of tax on the capital gain from the sale of the flat.

Any thoughts on tax liability or suggested right questions to ask his lawyer/accountant would be very welcome.

Thank you.

fengirl_2

You would need to know the value of the flat at the date of her mother's death as this would be the value of her father's second share at the date he aquired it. I am not sure that the son would be treated as a beneficial owner as he was only put on the deeds to satisfy the building society and also there would have been a disposal of part of the parents' share at that date, which, presumably, was not declared. A complicated calculation and more info needed to even take a guess.

trevormax

The market value at 1982 would be used for the two thirds of the property not inherited which is likely more than the original amount paid for the property.

amsquared

fengirl wrote: »

You would need to know the value of the flat at the date of her mother's death as this would be the value of her father's second share at the date he aquired it. I am not sure that the son would be treated as a beneficial owner as he was only put on the deeds to satisfy the building society and also there would have been a disposal of part of the parents' share at that date, which, presumably, was not declared. A complicated calculation and more info needed to even take a guess.

The value of the flat 6 months ago would probably be the same as today - Scottish prices have leveled and not sunk drastically as yet. So in June it would have been c£115000.

Not sure about whether the one third transfer was declared I share your suspicion that it wasn't.

amsquared

trevormax wrote: »

The market value at 1982 would be used for the two thirds of the property not inherited which is likely more than the original amount paid for the property.

I would estimate the value at 1982 would be about £33000. Why 1982 and not 1984?

Thanks

trevormax

I am not sure but I think 1982 was just a year that was chosen a while ago which has not been reviewed since. If possible you should try to get hold of any documents showing any incidental costs of acquisition, such as legal fees or stamp duty, and anything for any enhancements made to the property. This can also be deducted as costs. My suggestion if you are looking at a large CGT bill is maybe to get a tax consultant, they might be able to save you a lot of money.

amsquared

Thanks Jimmo for a very detailed reply - It doesn't look as bad as we originally thought. Our assumption was that FIL would have to pay CGT on his wife's share as well.

My understanding of the current ownership - the MIL's will has just been processed - is that all her assets including her share of the house passes to FIL. His will then passes all to BIL on his death. But I will get my wife who is the Executor to check that detail with her solicitor.

Thanks again for your time

silvercar

"What Is a Drawdown Mortgage
A Drawdown mortgage comes under the same umbrella as a Roll Up mortgage.

Instead of taking a cash lump sum in the beginning, a smaller cash amount is taken with the option of drawing down more cash either when needed, or regularly perhaps monthly or quarterly


Perhaps you agree to borrow £50,000 but want just £15,000 now to cover certain expenses


You still have the potential to withdraw another £35,000 in the future


And this is the important point – interest is charged only on the initial £15,000 drawdown not the full £50,000. Of course as you drawdown more of the available balance interest is then charged on this amount"

amsquared

In this case there was no mortgage on the property - the original purchase in 1978 was by Cash. They wanted to free us some cash for BIL for some expenses including house renovation etc. So they took out a mortgage which allowed them to take the cash as needed rather than all at once. As Silvercar says instead of taking the full morgage loan at the beginning of the term you take what you need and draw down more money as the bills come in up to the agreed maximum.

Thanks