Capital Gains Tax

kazo

Hi
I wonder if anyone could advise on this? 15 years ago my mum signed over her house to me and my brother but continued to live there rent free. She died recently and rest of estate is being sorted out by solicitors but the house is obviously already ours. It's been taken into account for Inheritance Tax but we're still below the threshold so that's not an issue.

I stay in a rented flat and my brother lives abroad. We plan to sell the house, dividing the proceeds down the middle. For the first time yesterday I heard about Capital Gains Tax and after a bit of reading it strikes me we might be liable for this. How does this work for a non UK resident (him) and someone who currently rents a property.
Any info appreciated.

fengirl_2

If your mother gifted the house to you 15 years ago, I dont understand why its been taken into account for IHT.
CGT will be payable by you on your share of the gain, but not your brother as he is not resident in the UK.
The gain is worked out by taking the proceeds less the value at transfer.

noh

fengirl wrote: »

If your mother gifted the house to you 15 years ago, I dont understand why its been taken into account for IHT.
.............................

Because she continued to live in it without paying a market rent. Therefore it was a gift with reservation and as such it remains within her estate for IHT purposes.

http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm

James_Trimby

Without research I suspect that for CGT you are looking at the gift date valuation as cost rather than the value on death (which would normally be the case if the original gift had not been made) THIS IS A VERY IMPORTANT POINT but as I have not come across it in practise dont know the answer off hand. Obviouly if the base cost is on death there is unlikely to be any gain when sold and if there is as long as sold within 2 years you can "send" this value back into the estate value (which if not incurring IHT is normally a good idea!)

IF you need to take the value at 15 years ago likely gains to be made you have about £10k you can make tax free each year(on your share of the property), rest in this case would be taxed at 18% As it was not your or your brothers main residence during that time no reliefs likely to be available. For brother if abroad for some time it is likely he will have to worry about the country he is living in's rules not the UK legislation, this can get complex!
There is more to look out for if a gain applies but you need an answer to the question of which date for CGT re acquisition hopefully someone will come up with the answer and I will learn something as well !

John_Pierpoint

What is you brother's tax status?
I had an aunt who "emigrated" to live near her son in S.Africa (RSA). The UK based relatives had to pay CGT on their share of the increase in value of the house of a deceased relative but aunt was able to avoid it.
(This was about 15 years ago the UK/SA double taxation treaty may have changed)

kazo

He's still a UK citizen but has been working and paying taxes in US for more than 20 years.

John_Pierpoint

USA/UK taxation treaty is outside my skill set:D

Obviouly if the base cost is on death there is unlikely to be any gain when sold and if there is as long as sold within 2 years you can "send" this value back into the estate value (which if not incurring IHT is normally a good idea!)

3 years?
2 years is for deed of variation to re-write the will ?

http://www.guardian.co.uk/money/2009/feb/22/inheritance-tax-property

(The Grauniad link states 4 years BUT I think that applies to a portfolio of properties - like claiming a drop in value of shares requires the sale of ALL the shares within a year.)

kazo

Thanks so much for all this info. I've never had anything to do with declaring tax by myself, always worked just 9-5, tax taken off each month automatically on payslip. I guess the onus is on me to approach HMRC and get a form when we sell the house and declare this - will it confuse things with my tax on my payslips or is it a totally separate issue?

Cook_County

Your brother should have reported the receipt of the gift 15 years back in the US. He is now subject to tax in the US on the gain - just the same as you in the UK. It will be at the 15% rate plus any State taxes.

He may also have to file a 3520 if he inherited anything as well as a Form TD F 90-22.1.

John_Pierpoint

kazo wrote: »

Thanks so much for all this info. I've never had anything to do with declaring tax by myself, always worked just 9-5, tax taken off each month automatically on payslip. I guess the onus is on me to approach HMRC and get a form when we sell the house and declare this - will it confuse things with my tax on my payslips or is it a totally separate issue?

If your gain is greater than the nil rate band/allowance or the value of your disposal is greater than 4 times the nil rate band (presumably will be;)) you are meant to inform HMRC of the transaction.

I once tried to take the attitude that there were two sorts of tax: Income Tax and Capital Gains tax.
So I filled in the usual Self Assessment Income Tax paper return that I get sent every year and wrote a nice letter explaining I had inherited part of a house and sold it, and it was self evident that I did not owe any CGT.

It didn't work: I got the whole shooting match sent back 3 months later and got told,
"..........You cannot decide you don't owe any CGT , only the inspector can make that decision..............complete these CGT pages we have sent you.........".

So I had to spend all day getting "comparables" and calculating values from 1980 something or other to demonstrate how much tax I did not owe.:mad:

It is a totally separate issue but YOU will have to do the self assessment. The gain is no longer added to you income tax and then taxed at (probably) 40%; for the moment we get away with the "bargain" rate of 18% but it is looking like you might be paying for historical valuations and dubious calculations, which will all get double checked by the VOA
(Sorry about the alphabet soup but have a "Google" if you need it translated into English.).

http://www.hmrc.gov.uk/rates/cgt.htm

John

By the way, while finding the link to HMRC for CGT, I stumbled upon this link which might be relevant to your brother's situation.
http://www.usatoday.com/money/perfi/taxes/2007-06-15-mym-capital-gains_N.htm

kazo

jimmo wrote: »

Whilst we don’t know all the details it seems most likely that if the mother had not gifted the house to her children 15 years ago there would still have been no IHT to pay but no CGT either. With the benefit of hindsight it was a bad plan but we don’t know all the circumstances.
Perhaps there is a lesson for all of us in this.

She was worried the house would be sold if she ever had to go into a home. However it didn't come to that and I know now from various threads on here and solicitor that this might not have exempted her anyway. Thanks again all - by the time we get the house ready for sale I will try to have read all the info in the links etc!