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Capital Gains Tax Help

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

Comments

  • Fire_Fox
    Fire_Fox Posts: 26,026 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Combo Breaker
    What does the solicitor you are using have to say? Have you spoken to the inland revenue? They are usually very helpful.
    Declutterbug-in-progress.⭐️⭐️⭐️ ⭐️⭐️
  • silvercar
    silvercar Posts: 48,676 Ambassador
    Part of the Furniture 10,000 Posts Academoney Grad Name Dropper
    As they are all related, the tax people may look at the true market value rather than the £30k your DP has been offered.


    It is all a bit complex because DP has 2 parts to his ownership, the quarter share he owned in 2000 and the third of a quarter share he inherited in 2008.

    So he owns a third in total, of which he owned three -quarters of that third since 2000 and the final quarter since 2008.

    You have to divide that 30k between the two parts, so 22.5k will be for the earlier part and 7.5k since 2008.

    For the earlier part, he has a gain of 22.5-7=15.5k. As he lived in the property as his main home until 2005, he would be exempt from CGT til 2005 and the last 3 years of ownership. The actual calculation is done in months, but roughly speaking out of 9 years financial interest he would be exempt from CGT on 8/9ths of it. He would also be entitled to letting relief if he can show the property was let in that time, which would swallow up the remaining gain (approx gain remaining is 1.7k).

    For the smaller part, you would need a value at the time the property was inherited and a value now, in order to calculate the gain. It may be that the property hasn't gained in value very much and you may well expect his share of the gain (and remember we are only looking at one twelfth of the total) to be small. My knowledge doesn't extend to knowing whether you could claim principal private residence relief on this part or not and reduce the gain further; given the house price crash, I suspect there won't be much gain here for you to worry about.

    Once you have calculated the two parts, add them back together and take off your CGT allowance of 10.1k. I doubt there will be much left, but if there is it would be taxed at 18%. Include in your tax return for 2009-10 and pay tax by January 2011.
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