Do I have to tell the Tax Man?

bplp

My dad gifted his house to us in 2000, he has since died and we are now selling for less than it was valued in 2000. Do we have to tell the Tax Man.

00ec25

you seem to be aware of the implications

Capital Gains Tax

yes you must inform HMRC of the sale - there is a requirement to declare any transaction where the gross proceeds of the sale are in excess of x4 the annual personal allowancne (ie > £42,400 for this year ) irrespective of whether the sale make a "profit" or a loss

in your case therefore you must decalare the sale but obviously will have no tax to pay since you made a loss (assuming you have evidennce to support the original valuation)
You can claim that loss and register it for future use if you ever make a profit

IHT
I assume you have already dealt with the fact (by implication) it appears to be a gift with reservation ?

00ec25

BTW

HMRC is notified of every property transaction in the UK so if you don't tell them they will find out anyway and chase you retrospectively

bplp

Thanks for the info.

"IHT
I assume you have already dealt with the fact (by implication) it appears to be a gift with reservation ? "

Not sure I understand this.
It was legally handed over to us in 2000 with my parents paying 1p a year in rent.

Also is the CGT the difference in value between 2000 and now, or the whole thing as we didn't actually pay anything for it?

macman

If they were paying only 1p per year then it's quite clearly a gift with reservation.

CLAPTON

bplp wrote: »

Thanks for the info.

"IHT
I assume you have already dealt with the fact (by implication) it appears to be a gift with reservation ? "

Not sure I understand this.
It was legally handed over to us in 2000 with my parents paying 1p a year in rent.

Also is the CGT the difference in value between 2000 and now, or the whole thing as we didn't actually pay anything for it?

maybe you don't understand

in order to avoid IHT then your parents must pay the full going rate in rent; otherwise the gift is one with reservation.. i.e. your parent retained the full beneficial interest in the house by living there for only 1p.

therefore when your father died the full valve of the house will be included in his estate for IHT purposed

in addition you're are also fully liable to cgt which is based on the value at the time of tranfer and the sale price; HMRC may well argue that the price at the time of trnafer was lower than the valuation as it had a sitting tenant

bplp

Thanks again

Who am I best talking too, an accountant or a solicitor?

00ec25

IHT
as Clapton says the fact your parents did not pay the full open market rent means this was a gift with reservation and therefore as far as IHT is concerned the transfer never took place and the full value of the property at the date of death of each parent would be included in their respective estates

Remember there is quite a high threshold for when IHT actually becomes payable, furthermore any unused allowance from the first parent is tranfereed to the 2nd, so potentially you have a max IHT threshold of £625,000.
So, even though the value of the house must be declared in their estate, this may not mean you actually end up paying tax. however the fact that your parent paid you 1p in rent does suggest that someone has seriously misunderstood the rules and therefore other aspects of the estate may have been mishandled as well, you need to check this out, do not ignore it

CGT
when a property is gifted from parent to child this is called a "connected person" transaction. If the child does NOT pay full open market value for the property at the time of the transfer then HMRC will themselves use that value as the basis for the cost price of the transaction. A sitting tenants who is the parent of the new owner will not affect the value as this is an obvious way to get a lower value and therefore is not allowed to affect the valuation in this specifci circumstance

Because you (or your parents) have misunderstood how to correctly plan for IHT, you personally are now indeed liable for CGT on the difference between its open market value at the time of the transfer and what you have sold it for. This is the "gross gain"

Just because you are liable does not always mean you will actually pay tax becuase the gross gain can be reduced by one or more allowances. You will only end up paying tax if the net gain after deducting these allowances is >£10,600

for example - after the transfer did you ever live in the house at the same time as your parents or did you have a place of your own at the same time?

bplp

Thanks for clarifying all of that.

Everything has been done as far as the estate goes and I remember the solicitor saying something about us not qualifying for IHT with or without the house, and it's gone through probate and the money distributed.

We have not lived in the house for years, and we both had our own houses before the transfer.

We've had an offer for the house of £180,000 and it was valued in 2000 at £200,000.
Shall we just let the sale go through and then call IR and talk to them?

John_Pierpoint

Where in Britain have houses gone down in value by 10% in the last 11 years? Has it suffered structuaral deterioration?

Establishing a loss of 20K (inclusive of costs of sale?) could come in useful if you ever manage to make a sizeable profit in the future.

bplp

You are quite right, we are selling it very cheap, as it needs quite a bit of work spending on it, and we've neither the time or the inclination. Thanks for your help.

What do you think we should we do next?