CGT questions re second property

Wouldyoucreditit

I was gifted 1/3 share of a property 15 years ago by a family member who lived there rent free until they died and I now own 50% of it.



Re CGT calculations

1. How is the property's value 15 years ago calculated?
2. It was double glazed and re-roofed after being gifted. How does this affect the value.
3. I have read somewhere that repairs are deductible allowances but improvements aren't. The property was in a state of delapidation and has needed everything doing to it included damp work, Central Heating, Plastering, Electrical work, new kitchen and bathroom, Fencing, slabbing, decoration, window blinds, carpets etc. Are any of these things not deductible?
4. Is the CGT relief just a one-off or an annual relief?
5. I'm in the 40% tax rate for earnings. How does the actual tax get deducted from me?
6. Are HMRC automatically notified of sale of properties as part of the conveyancing process?

John_Pierpoint

I once managed to argue that an elderly relative in this situation was the beneficiary of an interest in possession trust (a life interest) even though the will that gave her the right to occupy the property referred to a tenant paying a peppercorn rent.

This meant the property was taxed to Inheritance Tax (a modest 1K) and I did not have to get involved in dreaming up a value in 1982.

Wouldyoucreditit

jimmo wrote: »

As regards the probate value, it will only be a sound valuation if the value was “ascertained” for probate purposes.
Ascertained means that it was used in an Inheritance Tax computation and Inheritance Tax was actually paid.

The Property's value is below the level for Inheritance Tax.

2) As you didn’t incur any expenditure you can claim nothing.

I was wondering what happens because my father's expenditure has affected the value of the whole property including the 1/3 I owned.

3) When was the property in a state of dilapidation? If it was in that state 15 years ago then the state of dilapidation will need to be reflected in your acquisition value.

The property was in a state of dilapidation 15 years ago. How will a valuer determine the acquisition value when he cannot know what state the property was in?

If it was in a satisfactory state 15 years ago but had become dilapidated by the time you inherited the other 1/6 then there is likely to be an argument that most of the money spent by you will be repairs but some will be recognised as improvements.

Clearly the condition deteriorated over the last 15 years or so but it was already in a terrible state to start with.

5) You are required to declare your Capital Gains to HMRC and you will also have to pay the tax due.

Do I just telephone them and tell them as I don't receive tax returns? (I was hoping they'd get notified when we sell it and just send me some form to fill in so I know exactly what to tell them).

QUOTE]

Thanks for your help. I'll take a look at the links you've given and see if I can understand it.

Wouldyoucreditit

John_Pierpoint wrote: »

I once managed to argue that an elderly relative in this situation was the beneficiary of an interest in possession trust (a life interest) even though the will that gave her the right to occupy the property referred to a tenant paying a peppercorn rent.

This meant the property was taxed to Inheritance Tax (a modest 1K) and I did not have to get involved in dreaming up a value in 1982.

The property value is less than the Inheritance Tax threshold so no IHT was due.

I have a document saying 1/3 of it was signed over to myself and 1/3 to another relative but have nothing that says my father was to remain there for the rest of his life. I think it was just signed over unconditionally. My father did it because he didn't want us to lose out if he went into a care home. There was no rent agreement (even peppercorn rent). I just signed at the time and the other relative dealt with the solicitor (although I now have the deeds to the house).

John_Pierpoint

Wouldyoucreditit wrote: »

The property value is less than the Inheritance Tax threshold so no IHT was due.

The entire property value plus the value of everything else owned less the value of all the liabilities (debts & funeral expenses) was less than the IHT nil rate band ? ! ?.

I have a document saying 1/3 of it was signed over to myself and 1/3 to another relative but have nothing that says my father was to remain there for the rest of his life. I think it was just signed over unconditionally. My father did it because he didn't want us to lose out if he went into a care home.

With the benefit of 20:20 hindsight and now knowing that something between 1 in 5 and 1 in 3 of us end up in a care home (I think the average stay is something like 2 years), it looks like father made the wrong call?!?

There was no rent agreement (even peppercorn rent). I just signed at the time and the other relative dealt with the solicitor (although I now have the deeds to the house).

John ..........................

Wouldyoucreditit

It certainly doesn't sound easy. I'm going to telephone HMRC and talk to them about it as things seem more complicated by the minute. Something I failed to say was that I am planning to help out my son by paying off his mortgage with the proceeds and I need HMRC to inform me how this affects him. I need to know how this will affect his tax position.

John - Yes the total estate including cash and shares was valued at £183,000 in 2007 so we didn't have to pay Inheritance Tax. The house has had £32,000 spent on it and is worth around £210,000 now.

Thank you everyone for the replies and links. It has given me an insight showing I need professional advice.

ceeforcat

Just remember that HMRC does not exist to provide advice with regard to tax planning - it exists to calculate the correct amount of tax based on the decisions already made. Many of us on here are ex-HMRC and would be familiar with its approach.

If I were you I would take up jimmo's offer in the last two lines of his latest post.

With regard to the second part of your query, it will not affect your son's position in the slightest - there is no tax on gifts in the UK. The gift, however, would be regarded as a potentially exempt transfer from your estate and would be included in its value should you leave this earth within seven years.

Otherwise it is excluded.

Wouldyoucreditit

ceeforcat wrote: »

With regard to the second part of your query, it will not affect your son's position in the slightest - there is no tax on gifts in the UK. The gift, however, would be regarded as a potentially exempt transfer from your estate and would be included in its value should you leave this earth within seven years.

Otherwise it is excluded.

Aren't gifts over about £3,000 a year subject to Capital Gains Tax?

Does that mean the 1/3 share of the house gifted to me isn't liable to Capital Gains Tax? Is the value at the date of gifting required purely to calculate the gain between the value when gifted and the current value? I thought I had to pay tax on the whole 50% but needed to know the value when 1/3 was gifted so it could be worked out into today's value IFSWIM.

Wouldyoucreditit

jimmo - My wife only pays tax at basic rate. Could I transfer my share of the house to her before selling it on so that I don't pay CGT? I read on one of the threads that transfers between spouses are exempt from Capital gains tax. Only if it is legal I mean.

John_Pierpoint

Here is a simple question:
Who legally owns this property?
Bear with me.
English law has the wonderful dual concept of legal & equitable rights.
These date back to the days when the effects of the strict letter of the king's law could be ameliorated by equity - the church's concept of fairness.
I think a parcel of the king's land can only be held legally by 4 parties. Other parties who think they have an interest have an equitable interest which can usually be satisfied by paying them some money.
Back in the 1800's ownership of land, which was bought and sold, had to be Registered - this was in part to make land trading easier and in part so the state could find and tax land owners. It took until the 1970's for all areas in the country to become registrable for purchases. About 10 years ago inheritance became compulsorily registrable.
Compulsory registration was extended to a raft of other changes in ownership in April 2009 including changes in trustees of a trust.

I am wondering if this is the technical change that enables HMRC to monitor changes in ownership just before a sale?

When did dad die?

Could it be argued that those trustee's called "executors" still legally own 1/3rd of the property? (They have a half the normal CGT nil rate band ie 5005).

What have you been told legally?

What have you signed legally?

[Have I gone totally off on a tangent - please feel free to shoot me down. I agree with Jimmo, this is no longer a gentleman's game of cricket. It matters no who won or lost........ More like World Cup football:D]

Wouldyoucreditit

John_Pierpoint wrote: »

Here is a simple question:
Who legally owns this property?
I'm now very unsure about this. I know we each own 1/3 of the property but don't know if we need to do something else to transfer the remaining 1/3 between us.

About 10 years ago inheritance became compulsorily registrable.
We have not registered the fact that we inherited a share of the property. and nevr knew we needed to.

Compulsory registration was extended to a raft of other changes in ownership in April 2009 including changes in trustees of a trust.
Would this only apply if you are changing ownership in 2009 or afterwards?

I am wondering if this is the technical change that enables HMRC to monitor changes in ownership just before a sale?

When did dad die?
2006

Could it be argued that those trustee's called "executors" still legally own 1/3rd of the property? (They have a half the normal CGT nil rate band ie 5005).
Possibly if there is something we needed to do (but haven't) to actually inherit the remaining 1/3 between us.
How much of a property do you have to own to qualify for £10,100 relief?

What have you been told legally?
We haven't taken any legal advice since the property was transferred by Deed of Gift from a sole name into joint names.

What have you signed legally?
I don't have a copy of what I signed but do have a copy of the Solicitor's invoice for preparation and completion of Deed of Gift transferring the property into joint names and a Land Certificate back in 1997.

[Have I gone totally off on a tangent - please feel free to shoot me down. I agree with Jimmo, this is no longer a gentleman's game of cricket. It matters no who won or lost........ More like World Cup football:D]

I have a Land Certificate and section B Proprietorship Register says 'Title Absolute' and states:-

1) the date and our 3 names and addresses.
2) It says "Restriction: No disposition by a sole proprietor of the land
(not being a trust corporation) under which capital arises is to be registered except under an order of the registrar or of the court".

My father died intestate and we completed the probate forms without using a solicitor as they appeared straightforward. We were issued with Letters of Administration and subsequently received confirmation that no Inheritance Tax was due.
I am now starting to think there is something we haven't actually done in terms of inheriting my father's share of the property. There is no-one else to inherit it and we have just assumed it to now be inherited between us which was my father's wish. We didn't register it into just our 2 names. I feel rather stupid now for not having totally understood what Letters of Administration actually are.

What are the implications of this? Does the fact that we didn't re-register the property mean we legally only own 1/3 each still?

Do I actually own 50%? If not, can anyone advise what should now be done? Is it better for me to start a new thread and deal with this issue first?