Joint tennants in common - what tax is due?

hkminca

We bought a house in 4 names as joint tennants in common for my parents a few years ago. We took out the mortgage in all for names, which has since been paid.

Mr father passed away recently and the solicitor advised applying for probate now so that when Mum dies it will make it easier re selling the house. He confirmed we don't need to notify land registry now, only when we want to sell.

As we are joint tennants Dad's share of the house is now in trust, and we'd need probate to prove we have the right to sell - we know we'll also need to get probate when Mum dies too for the same reason.

What I want to know is will we have to pay CGT on the house sale when the time comes? Is there a way of avoiding paying this by moving into the hosue for a period of time before we sell it? I heard there is a 2 year period during which time we have to decide which house is our main residence for CGT, but as we've already been joint owners on this house for 4 years I think we may not be able to come under this.

Any ideas anyone?

CLAPTON

who currently lives in the house
who has lived in the house during their period of ownership

how much was your father estate worth : I'm surprised that probate isn't a legal requirement now : why is your solicitor saying you don't need probate?

hkminca

Mum lives in the house now, but Dad obviously lived there too when he was alive. We've never lived there, it was a requirement of the mortgage company to have my parents on the mortgage as although they didn't contribute they were the ones living in the property.

Dad's estate is worth about £40K, including his quarter share in the house.

The solicitor has advised us to get probate, as I said in the first message. I've opted to apply for this myself rather than pay him £2K to do it for me. Paperwork took hours to do, but am not giving him £2K so had no choice but to do it myself. As Dad's estate is so small I figured it wouldn't be too hard to do.

pjclar02

Hello there

If the house has increased in value from when you bought it then you may have to pay capital gains tax when you sell. Are you able to post up the acquisition cost and the estimated current market value of the property?

Based on the information you have posted, it sounds like you may have received some bad advice when structuring the acquisition. If the house had been bought in your parents names only, and the house then passes to you on the event of the death of both your parents, then you would have acquired it for probate value, and if it was sold immediately there would have been no inheritance tax (I assume, based on the value of your dad's estate) or capital gains tax for you or the other beneficiary. Whereas now you may be exposed to a capital gains tax liability - depending upon the above figures.

hkminca

At the moment the property is probably worth less than when we bought it, about £165K now. We bought it this way to avoid my parents having to sell if they had to go into a nursing home. Dad spent 18mths in one before he died. Mum doesn't want to be forced to sell her house to pay for care if she needs it.

No inheritance tax will be due on the estate when Mum goes either.

We weren't sure if CGT would come into it if we did move into the house before we sold it for a period of time.

I know this is all what if's and maybe's but just trying to think ahead to the future.

pjclar02

I see.

So you will ultimately inherit your mother and father's respective quarter shares in the property - your deemed base cost for these quarters will be the probate value.

If the probate value for your mother and father's quarter shares, plus the base cost of your share (and whoever owns the fourth quarter) is more than you eventually sell the property for, then there will be no capital gains tax.

If the house suddenly goes up in value before you sell it then there could potentially be a capital gains tax liability. This could be reduced by:

a) Annual exemptions for you and the fourth owner of c£10k each;
b) Moving into the property for a period to claim private residence relief. However, if you already own another home, you need to consider which property it would be best to nominate as your main residence.

Hope this answers the questions - but let me know if not!!

00ec25

pjclar02 wrote: »

Ithere could potentially be a capital gains tax liability. This could be reduced by:

a) Annual exemptions for you and the fourth owner of c£10k each;
£10,600 at 11/12 tax year rates. Note this is NOT a cumulative figure, it applies once only against the gain in the year when you sell

b) Moving into the property for a period to claim private residence relief.
agreed
However, if you already own another home, you need to consider which property it would be best to nominate as your main residence. too late, as OP stated, they have been part owners for 4 years therefore cannot now exercise the right to nominate, therefore which property is their main residence for PRR purposes will now be based on the physical facts ie where dfo they actually live. Also note that "living" is not a question of time only biut also one of the quality of occupation

Hope this answers the questions - but let me know if not!!

also note that as a married couple, the OP and spouse MUST usethe same property for PPR purposes - HMRC regard all married couples as living together (even if the couple would prefer not to - for tax purposes of course!)

jimmo

It may be not terribly important in the context of where this thread is at present but it could help you in the future if you get to grips with the legal terms.
The most common forms of joint ownership in England and Wales are as
1) Joint Tenants or
2) Tenants in common.
As far as I am aware, there is no such thing as “Joint Tenants in Common”.
Your solicitor’s description of what has happened or is happening to dad’s ¼ share of the house definitely indicates that you bought the house as tenants in common, not joint tenants.
If you then unwittingly use the wrong terminology, such as in the third paragraph of the opening post I am afraid you could confuse yourself and others.
Now, when you say “Dad's share of the house is now in trust. ”It is unclear whether his will has actually created a trust or not.
Did your dad leave a will? If so what does the will say about who gets his share of the house?
With regard to your own potential Capital Gains Tax liability there is, I am afraid, every likelihood that you will be liable when the house is sold but, as thing stand, whilst you own a ¼ share of the house, it is not your residence, i.e. a place where you live.
http://www.hmrc.gov.uk/manuals/cgmanual/CG64465.htm
I am afraid that you haven’t missed the 2 year deadline for making an election because you have not created a situation of having 2 places where you live.
You actually moving into the house and living there may present some tax saving opportunities, but speaking as a former taxman who used to deal with these sorts of things, I would always smell a rat if you had moved back to your original home after temporarily moving in to your parents’ home after their death.
I would suggest that if you wanted to do this, the safest option would be to sell your current home in order to move into your parents’ home and buy a new home when you move out.
Given that your dad’s estate is worth about £40k including his ¼ share of the house I would respectively suggest that facing a tax bill when your parents’ house is sold may be a lot cheaper than the emotional and financial costs you will face in order to reduce the tax.
However we are all different and have different family circumstances.
Happy to discuss further if you wish.

hkminca

Thanks everyone for the comments. At least I know now that we are likely to face a bill when the time comes to sell the house if it goes up in value. I guess at that time I will need to work out whether it is better to sell the house for a lower sum and avoid tax than sell it for more than we paid and incur tax which will ultimately mean a lower net amount after the sale.

And yes, we are tenants in common - sorry for the confusion!

ceeforcat

hkminca wrote: »

I guess at that time I will need to work out whether it is better to sell the house for a lower sum and avoid tax than sell it for more than we paid and incur tax which will ultimately mean a lower net amount after the sale.

And yes, we are tenants in common - sorry for the confusion!

Can't understand that - would you not rather receive an additional £10000 for the sale and pay tax at 18% or 28% leaving you £8200 or £7200 better off?

Reminds me of the case I had where the client had not claimed his state pension because he did not want to pay more tax!