Capital Gains Tax and Inheritance

tsp1

I have been trying to find an answer regarding a CGT situation and its implications in an inheritance.

Basically my wife's parents moved into her grandfather's house about a year ago. He moved into sheltered accomodation and my wife's parents put their house on the market.

At the present time the grandfather still owns the house they are living in and wife's parents house is still empty and on the market.

In the grandfather's will he has left the house to wife's parents. If he dies before wife's parents house is sold this will mean that they own one property and have inherited another. If they then sell their old house and live in deceased grandfather's house does this mean that they pay CGT on it?

I have just sorted out my deceased grandmothers estate by myself and found it quite straightforward but any help on this would be gratefully received.:)

00ec25

scenario 1
the parents have 36 months from the date they move out of their old house and become legal owners of (ie inherit) the grandfathers house in which to sell their old house and can thus claim 100% CGT exemption.
This is allowed becuase they are selling under the private residence relief rule which includes something often called the the "last 3 years rule"


scenario 2
if the parents become legal owners of GP house and take longer than 36 months to sell their old one, then they will incur a CGT liability based on the time period when they simultaneously owned 2 properties, eg.

old house. (The calculation should be done in months but for convenience I use years) parents move out in year 6 of ownership to live in GP house. They take another 4 years to sell the old house. CGT liable period: total ownership period of 10 years minus 6 years of private residence - last 3 years rule = 1 year liable

so CGT would be payable on 1/10 of the total gain (the difference between what they originally bought it for 10 years ago and what they sold it for 10 years later)

note - the above assumes that they have not rented the property out after vacating it themselves.

John_Pierpoint

Any potential Inheritance Tax and/or Care cost liabilities ("deliberate deprivation of assets")?

silvercar

00ec25 wrote: »

scenario 1
the parents have 36 months from the date they move out of their old house and become legal owners of (ie inherit) the grandfathers house in which to sell their old house and can thus claim 100% CGT exemption.
This is allowed becuase they are selling under the private residence relief rule which includes something often called the the "last 3 years rule"


scenario 2
if the parents become legal owners of GP house and take longer than 36 months to sell their old one, then they will incur a CGT liability based on the time period when they simultaneously owned 2 properties, eg.

old house. (The calculation should be done in months but for convenience I use years) parents move out in year 6 of ownership to live in GP house. They take another 4 years to sell the old house. CGT liable period: total ownership period of 10 years minus 6 years of private residence - last 3 years rule = 1 year liable

so CGT would be payable on 1/10 of the total gain (the difference between what they originally bought it for 10 years ago and what they sold it for 10 years later)

note - the above assumes that they have not rented the property out after vacating it themselves.

Under scenario 2, they could make a declaration, during the first two years of owning both, that their old home is to be considered their PPR. They therefore won't have any CGT to pay on its sale. The only requirement would be that it is available for them to live in ie not let.

Whether they make this declaration or not, they each have a CGT allowance of £10,100 if not used elsewhere.

tsp1

John_Pierpoint wrote: »

Any potential Inheritance Tax and/or Care cost liabilities ("deliberate deprivation of assets")?

We do not think there will be any inheritance tax costs as it will fall within inheritance tax limits. There are no care costs to consider at present.

John_Pierpoint

How is grandad funding his sheltered accommodation?