Capital Gains Tax Help

butterflylady

Hi everyone,

I'm really hoping that someone will be able to give us some advice, this is a very long story but I will try and make it short and too the point.

In 2000 my MIL purchased her council house on the right to buy scheme, my DP and his sister provided the money for this. At the time they were told to put the house in all 4 names, BIL. MIL, SIL and DP.

BIL moved out of the property in 2000 but his name was kept on the deeds.

DP moved out of the house in 2005 (4 years ago).

SIL still lives in the house, MIL sadly passed away last year.

When MIL past away her name was removed from the deeds. SIL has been paying BIL and DP rent each month however this has for a variety of reasons not worked.

It was decided that she would buy them both out of the house. Todays at least 4 weeks into the process of buying them out she has mentioned Capital Gains Tax, this is something we had never thought of as the house was just thought of as my MIL.

We are now trying to work out how much if any Capital Gains Tax my DP will have to pay on his money.

He put £7000 towards the purchase in 2000 and is now being offered £30,000, the house was his main residence until September 2005. He has done countless DIY jobs over the years to improve the value of the house.

My current thinking is that he has to take away the amount he paid for the house from the amount offered, leaving £23,000. There is then a disregard of the first £10,000 this leaves £13,000 to pay capital gains tax at 18%.

I'm not sure whether there is a disregard thinking to the DIY he has done which has increased the value of the property. Also I seem to think that I should be trying to find out the property's value in 2005 to take away from the current valuation as that was when he left.

But I don't know.

I would be grateful for any help, I am 21 weeks pregnant with our second child, this money was due to set us up and help remove stress, instead I'm sat yet again on the verge of tears.

Butterfly

XXX

mountainofdebt

right first of all calm down - might seem all confusing but that's why Martin set up MSE to help,lol!

If the property was held soley in your OH's name then I think what your calculation by taking the initial investment of £7K, and deducting this from what the house is effectively sold for ie £30K is correct

However, I think you are allowed to take inflation into account from the time of purchase to the time of sale to inflate if you like the purchase price so for example say inflation increases the £7k to £8.5K then the capital gains is actually £21.5K.

He does have an Capital Gains Tax allowance (sorry don't know what it is ) but lets use your figure of £10K for arguements sake.

This means, using my figures, he would pay Capital Gains on £11.5K

However how was the MIL's share of the house distributed on her death ? Or did all parties hold it in such a way that the MIL share was divided equally between the remaining parties as this is the part that I am unsure of how it will complicate things .....it may be that the Capital Gains is worked out exactly as I said before up to your MIL death on just your OH's share at that point and then the value of the house at the point of her death is used as a second start point to work out the capital gains on your OH increased share of the property, but he would still be able to take inflation into account but the periods would be date of purchase to date of MIL's death and then date of MIL's death to date of sale

I think that the date that he left the property is disregarded as it ceased being his main residence - I think you get 6 months grace - hence why all the MPs have been flipping their main/second homes to avoid CGT.

Also I think the DIY costs can be disregarded but someone far more knowledgeable than me will confirm / correct this.

butterflylady

mountainofdebt, thank you for taking time to respond.

I think I understand what your saying and your figure of £11.5k is lower than I managed to get it too.

I'm totally kicking myself now for taking the easy option a couple of years ago and not doing tax when I took my AAT.

If any one has any other thoughts I'd be grateful, also does anyone know the website where you can work out the value of property in previous years?

Thanks

mountainofdebt

Hang on -my figure is only for illustrative purposes only .........I haven't sat down with a calculator etc and worked it out properly.

The guys and girls on the tax board will know for definite how it works, so it may be a good idea for this thread to be moved to that board.

when your MIL died what happened with her share - was the house valued at that time?