Capital Gains Tax and property query

Mee

Dear All,

I've looked on the HMRC website, but I'm still unsure what is required to comply with the CGT law in this case.

I'm helping my elderly mother (divorced) sell her and my late father's house (they owned tenancy in common 50%). I'm the sole beneficiary and administrator of my late father's estate. I had assumed that since my mother and I do not own another property that we could claim primary/main residence exemption. Is it this straight forward? The house was bought in the early 1970s (for an unknown amount) and was our family home until the early 1980s when domestic violence forced my mother to leave the house. Over the year's I've stayed their at various times, most recently to care for my father when he was ill.

The estate is well below the IHT threshold. We're also planning to split the proceeds equally with another relative.

James,_Oxford

The 50% you inherited from your father will be deemed to be acquired by you at its market value at the date of death. Given the house price situation there is unlikely to be much of a gain in this share, and so unlikely to be much tax to pay if you were to dispose of it some time soon.

The 50% share which belongs to your mother will be subject to CGT unless the principal private residence relief applies. Its a tricky relief with lots of conditions and requirements but here is a outline of what I see are some points to consider:

For your mother to take advantage of the relief she will need to elect for it to be her main residence and she will need to reside in that property from time to time. I appreciate that this may not be something she is prepared to do. As far as I know there is little guidance on what length or frequency of occupation is required for a second property to be treated as a main residence for the purposes of the relief. Perhaps someone will be able to shed some light on this.

If a valid election can be made then the amount of the relief depends on length of occupation. In general only occupation after April 1982 is taken into account. If your mother has not lived in the property at any time since this date then there will be no 'actual' occupation for the purposes of the relief.

The last three years of ownership are treated as a period of 'deemed' occupation providing the owner has lived there at some point, even if this is before April 1982. Your mother may be able to qualify for this deemed period of occupation.

If the above applies and your mother has occupied the property for only 3 years out of the last 27 years, then the relief available is given by multiplying the fraction 3/27 by the gain in the property on a sale.

There are no doubt other points to consider but this should put you in the right direction.

Ray_Arman

In simple terms, if neither your mother nor you had owned another property and this was your only residence then on disposal of this property there will be no capital gain tax for both of you. Neither do you nor your mother have to notify HM Revenue & Customs. However, since your mother had left her home in the early 1980's she would have to pay Capital Gain Tax on her share at disposal. She will however have relief available on the amount that related to the period of her residence.

You are also correct that there was no IHT implication as the market value of the house (the 50% share) was well within your fathers annual IHT exempt amount.

James,_Oxford

Not quite sure you are correct Ray. Mee's mother is likely to have a capital gains tax liability on the sale.

If Mee's mother occupies her current home as a freeholder or under a lease then she will have two residences. If she occupies her home under a lesser interest such as a licence then she will only have one residence - the former family home.

If the first situation applies, Mee's mother will only be entitled to private residence relief if she can make a valid election for the former family home to be her principal residence. Even if she can make a valid election there will only be a small amount of relief available because for many years there was no occupation. If no valid election can be made then she will not be entitled to any private residence relief.

If the second situation applies, no election is necessary, but again there will be little private residence relief available.

Mee

I thank you all for your responses, but I'm still confused!
There is no intention to avoid CGT.
With regard to jimmo's query about T-in-C ownership etc - both my mother and father's names were on the deeds right from the start (1970s), but Restriction A was added in the late 1980s as part of divorce proceedings. I guess that my parents were ahead of their time, but then they were in many other ways.


Thanks everyone.