Capital Gains Tax

WLM21

Thank you for all the advice

I shall be seeing a solicitor shortly, so will no doubt get some advice then too.

Option 1

If I opted to keep my original house (to rent) what CGT would I be liable to, when I inherit and move into my father's house ? (based on the rough values shown on my original posting)

Option 2

If I was to see my father's house and stay in what was my own house, would I be wise to sell 'as it is' or try and 'fix it up' before selling ? Jimmo (post 7) put it quite clearly ... but is there a time limit to avoid tax. And of course, if I can get, say £50,000 more for it, even after tax, I will benefit ... won't I ? or am I wrong ??

I suppose if I paid £30,000 to increase the value by £50,000 (just as an example) I would be foolish to do this

jamesd

Ignore the tax when deciding where to live. Pick where you want to live. Then work out how to do things efficiently. You have the assets to get whatever money you need to do up the property so there's no need to let that be a big factor either.

jimmo

Option 1
Capital Gains Tax arises when you sell (dispose of) a chargeable asset.
If you move into your you father's house and start to let your existing house you will not actually dispose of anything and so will not be liable to capital gains tax.
If, at some time in the future, you decide to sell your existing house, you may become liable to capital gains tax then.
When you sell the house the capital gain will be calculated as
Net proceeds of sale (after expenses)
less the original cost (including expenses)
less costs of improvements.
The capital gain will then be regarded as having arisen equally over the entire period of ownership and the capital gain will then be apportioned between exempt periods.
The period that you lived there as your main home will be exempt.
The last 3 years of ownership will be exempt.
Any periods not covered by the above will be chargeable, but you will also be entitled to lettings relief up to a maximum of £40,000.
There you can definitely let the house for 3 years and probably quite a bit longer without facing a capital gains tax bill but if you do face a liability you will not suddenly face a liability in respect of the whole gain.
All the details I have referred to are here.
http://www.hmrc.gov.uk/helpsheets/hs283.pdf

Option 2
If and when you sell your father's house the capital gain will be calculated using exactly the principles outlined above.
Net proceeds of sale (after expenses)
less the open market value at the date of inheritance
less costs of improvements.
However, because you will not have lived in the house during your period of ownership, no private residence relief will be available to you.
Therefore, if you acquire the house at a value of £230,000 and sell it for £230,000 there will be no capital gain and no tax to pay.
If you spend £30,000 on improvements and sell it for £280,000 there will be a capital gain of £20,000.
There are all sorts of things you can do to mitigate the tax and in your example, if you are married, you could gift a half share in the house to your spouse.
We are all entitled to an annual exempt amount , currently £10,600, and, as your individual capital gains would be £10,000 no tax would be payable.
There are all sorts of possibilities for you here, but I am struggling to understand what you are seeking to achieve. Do you fear a horrendous tax bill? I hope I have allayed your fears on that. Do you see this as an opportunity for you to become an entrepreneur? In which case you will happily splash out £30,000, presumably of borrowed money to improve your father's house in anticipation of making a profit.
In my time at HMRC I saw lots of people become very rich on the back of a very buoyant property market but I also saw a similar number of people having their homes repossessed and/or being made bankrupt in the same buoyant market.

WLM21

jimmo wrote: »

Option 1 ...

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

Option 2 ..

Many many thanks for taking the time to provide such an excellent reply.