Selling elderly parents' second home

Tonyk840

My parents, both in their 80s and so long retired, have finally decided to sell their second home. They bought the house in the mid-1970s and have rented it out for the majority of that time. The property was purchased as an investment and so has never been lived in by them.

The question I have is, what is their tax liability likely to be? I believe that they paid about £7,500 for the property, which is currently under offer for £295,000.

Thanks in advance.

ognum

Do they have all the bills and receipts for all the improvements they have mad to it over the years.

inmypocketnottheirs

Has the rental income been declared for tax purposes?

I think your parents should see an accountant. A few hundred quid on fees could save thousands.

Tonyk840

Yes, all rental income has been properly declared over the years.

There haven't really been any major improvements, though a new central heating boiler has been installed and the house has had a new roof within the last 10 years I think.

I am presuming that since my parents have owned the property so long they'd be taxed on a sliding scale? Right now though (before accountants etc etc.) I'd just like to get some sort of ballpark figure of what the tax liability could be.

InMyDreams

http://www.hmrc.gov.uk/cgt/property/calc-cgt.htm

should give you your ball part figure of what it could be. So yes, an accountant would be advisable.

00ec25

as they bought it before 1982 the origional purchase price is now irrelevant. For the CGT calculation they are required to use the value as at 31 March 1982 as the start point. Until you know this value then you cant guess what the tax bill will be

follow the link on the HMRC website to the VOA to get help with this valuation, note that you will need a specifci valuation for the actual property, you cannot just use only a "beacon" cost - either you pay an independent valuer to do a specific one for you or you ask HMRC to do it

as they have never lived in it, the only relief available is their personal allowance. As it is jointly owned then each can deduct 10,600 from their own share of the gain

boiler replacement - unless the house did not have a central heating system before, then this cost is a repair not an improvement so should have been claimed as a cost against income tax. It is not a capital item and cannot go against the CGT if it was a replacement of like for like

similalry the roof is a repair like for like, not a capital improvement

as a very rough ballpark figure lets say:

value 1982 £10,000
value now 295,000
gain 285,000

less allowannces (10,600 x 2) = 263,800
less costs of buying and selling lets say 5,000 in total

so each is laible on (263,800 - 5000) /2 = 129,400
each person will pay their own tax and I assume each has a differnet pension income so we cannot give an actual figure as some of it may fall into the 18% band
the worst case is all is in the 28% band , in that cas ethey would pay 129,400x28% = 36,232 each

So in this example they would get 295,000 cash , pay fees of 5,000 and tax of 72,464 (36,232 x 2) and thus be left with £217,536

lincroft1710

I appreciate 00ec25's figures are a rough ballpark figure, but from buying a house around that time I think the 1982 value is likely to be nearer £25K, if they're looking at £295K now.