CGT Help Please!!!

minskerella

Hi,

I hope somebody is able to help me. My Mum is a widow and moving to live nearer me and my family. As she can not sell her house a the mo due the poor market, she has bought a second house which she intends to live in once it is done up. Do you know how we stand for CGT once she has sold her original property? I know we have three years, but she is panicking incase the market is still poor. She bought her original house for £115 and it is expected to sell at approx 250k. She has spent about £50k on it, but does not have receipts! Does this matter?
Many thanks

CLAPTON

In principle if she owns two houses she will be liable to pay CGT
However this is likely to be small as she it entitled to relief for when she lived there plus the last three years and has a personal CGT allowance of 9,600

minskerella

Many thanks for your reply Clapton.

I worked it out to be quite a lot £250k - £115k = £135k - £9600 = £125,400 x 18% = £22,572 :eek:

I know you can deduct renovations, which would make it a lot less, but we don't have receipts or bank statements. Do you know what they di if this happens? Is there any other way you can prove it?

fengirl_2

The period during which she occupied the house, plus the final 3 yrs of ownership are exempt. There are also selling costs to tax into account. As Clapton says, there is unlikely to be any CGT to pay. CGT was not designed to 'catch' people in your mother's situation.

minskerella

Thanks Fengirl. To make it more complicated, part of the house used to be a small off licence. This closed down five years ago when my Dad fell ill. Would the fact part of it used to be a business make any difference?

CLAPTON

minskerella wrote: »

Many thanks for your reply Clapton.

I worked it out to be quite a lot £250k - £115k = £135k - £9600 = £125,400 x 18% = £22,572 :eek:

I know you can deduct renovations, which would make it a lot less, but we don't have receipts or bank statements. Do you know what they di if this happens? Is there any other way you can prove it?

just to explain the calculation
suppose your mother bought the house 10 years ago and sells in 4 year

then calcuclation is
250k-115k =135k x 1(year)/14(years owned) = 9642 less 9600 = virtually zero

so she only pays for 1 year gain as she lived there of 10 exempt years and gets the last 3 free too.
you need to feed the real figures in of course and its worked out in months but the principle is there.

minskerella

That's brill I understand now. Thanks for your clear explanation. Do you think it would matter that five years ago the front room used to trade as a small village shop? They bought it eight years ago and ran the shop for three years before my dad died. Thankyou very much for your help -much appreciated :beer:

jimmo

That makes it a lot more complicated.
I will use Clapton‘s example of mum living there for 10 years and selling it 4 years later to try to give some consistency.
I also assume that your mum and dad bought the house jointly.
Also let’s assume that the shop was 1/6th of the property.
Then your mum bought her half share for £57,500 and inherited your dad’s half share when he died. Assume that the value of the house then was £180,000 so your mum acquired the 2nd half for £90,000
Her Capital Gain now becomes (250- 57.5 - 90) £102,500.
Over 14 years of ownership that represents gains of £7,321 each year.
For the first 3 years of ownership 5/6th of the gain is exempt but 1/6th (the shop) is chargeable.
So there are chargeable gains of 3 *1/6 *7321 = £3660
The final year of ownership is also chargeable £7321
So there are total chargeable gains of £10,981
The current exempt amount is £9,600 which leaves £1381 chargeable @18% = £248.58.
Check the exemptions out for yourself here http://www.hmrc.gov.uk/helpsheets/hs283.pdf

minskerella

Thankyou very much - you have all been so helpful. Very much appreciated :beer:

jimmo

In your original post you said that your mum spent £50K on the property but that hasn’t been included in any of the computations so far.
As she doesn’t have receipts it could be a bit awkward but if your computations using more accurate figures than in the posts above show that she is going to have to pay any tax it must be worth a further look.