What Is My likely Capital Gains Tax Liability?

arkwright01

Hi,

I wonder if someone could answer this for me please?

I inherited a property (a shop) from my father after he died in 1996. I lived there and ran the shop for a further 5 years. In 2001 I'd had enough of running the shop so decided to rent out the property, got a mortgage, bought a house and moved there.

Now the lease has ended and I'm selling the property.

My question is, what is my liability for Capital Gains Tax? Yes, it was my only residence but this was over 6 years ago. Is CGT payable on the whole of the sale proceeds or was there a value to the property when I inherited it? I know the solicitor dealing with the estate at the time must have given it a value so that he could see if there was any Inheritance Tax liability.

I'm a little confused...could someone explain it please?

silvercar

if it was just a home without commercial premises, you would take the increase in value and then allow for the time you lived there and the last 3 years of ownership as gaining relief. so out of 11 years ownership you would be exempt for 8 of them, so your CGT liability is reduced by eight-elevenths. there is also taper relief as you have owned the property since 1996, so you only pay tax on 60% of the reduced gain.

As there is also commercial property involved you may have to aportion the value between the two parts.

arkwright01

Thanks...so how do I know what the increase in value is?

silvercar

there must be documents stating its value when the estate value was calculated.

to get it valued now either pay a surveyor or contact an EA.

arkwright01

I have no problem with the value now...I'll have to contact the solicitor who dealt with my father's estate and see if they have still got a copy of the valuation in 1996.

jimmo

Stop and think. I am a retired Inspector of Taxes who specialised in Capital Gains Tax and , in my experience most people who ask for help saying things like “ I am selling the property“ have already done so, or have exchanged contracts and the damage has already been done.

You inherited “a property (a shop)… and lived there and ran the shop for a further 5 years.”. You can’t live in a shop . So you probably inherited a property that comprised of a shop with living accommodation e.g a flat over.

The property you inherited will have been “valued” as at the date of death of your father but the key question is whether that value was “ascertained for Inheritance Tax purposes”. Basically that means that if Inheritance Tax was paid on his estate the value of the whole of the property is fixed for Capital Gains Tax purposes.

However where the estate is clearly below the Inheritance Tax threshold people frequently use a value way above the true market value as a safety precaution. No Inheritance Tax is payable anyway and the value used is meaningless.

So you inherited a property, part of which was used for business purposes for 5 years and the remainder was used as your home for 5 years.

That is not straightforward. The value of a shop with a flat above on a council estate may split 50:50 but a similar property in a city centre location may split 90% business 10% living accommodation

You will have Capital Gains Tax exemption available on the residential element for the period you lived in the premises (plus the final 3 years) and Business Asset Taper for the period whilst you ran the shop as a business.

If this sounds complicated then I am sorry but it is. I haven‘t touched on the question of whether you are married or not. That could have a huge significance, if you were married during the period when you lived in the property then a gift to your spouse of a half share in the property before sale could have a huge impact.

As you let the residential part which you once occupied as your main residence you will also qualify for lettings relief . This could reduce the chargeable gain by up to £40,000 or £80,000 if your spouse also occupied the property and you are able to gift a half share before sale.

The value of advice I, or anyone else, can give depends on the amount of personal information you are prepared to publish on this site.

Give me details and I will see what I can do

arkwright01

Thanks Jimmo...I'll p/m you with some further details.

jimmo

Arkwright01

Sorry I tried to post this message yesterday but managed to fail so here we go again.

I eventually got your p/m but I am relatively new to the board and didn’t know such a thing existed. To be frank I am not too happy to use it. As far as I am concerned I see the board as a means of sharing information and there are 2 distinct benefits from that.

If others are in a similar situation to yourself they may learn from the postings and may not have to raise similar questions.

If someone posting advice on the board gets it wrong then others with good knowledge of the subject matter will have the opportunity to post corrections.

As it happens I have spotted a mistake in my original reply because I suggested the possibility of your spouse claiming main residence relief. That would only be feasible if the gift of a half share of the property had taken place during a time when both of you were using it as your main residence.

As a generality the loss of the main residence relief far outweighs any potential advantages from splitting the gain between you but it is always worthwhile checking fully to be sure.

The situation you are in involves 3 separate professions.

A Solicitor to handle the sale of the property including any gift pre-sale
A Valuer to value the property
An Accountant or Tax Adviser to make the tax calculations.

Doing it yourself is feasible but fraught with danger. However getting the right advice is not easy either.

In my days at IR, latterly HMRC I handled the tax side but had access to legal advice from the Board’s Solicitor, valuation advice from the District Valuer and technical tax advise from Head Office specialists. As a private individual I have none of these now.

I think it would be unwise of you to rely solely on me for advice and even more unwise of me to give advice on an individual basis.

I don’t see anything particularly sensitive in your p/m but it is your information, not mine. Post it in the thread and I will reply so that others will have the opportunity to question, correct or criticise.

Jimmo

Ps I’ve never found the answer to How many Ps are in p p p pepper. Is it six or seven?

Ian_W

7 - I think!