Capital Gains Tax on Inherited Property

johnie_the_joiner

When my father died in 2004 his will split the family home thus: 50% to mother who remains in residence, 25% to my sister and 25% to me.


We have not received any rent and neither of us have lived in the property.


Mum is now considering selling and so will both myself and my sister become liable for capital gains tax on the increase on our individual shares ?


Secondly, would the CGT liability be deffered if mother bought two houses with the proceeds – living in one and letting the other ?


Many thanks

CLAPTON

you and your sister are liable to cgt on a quarter of the gain less allowances (10,600 curently)

your mother can do what she likes with her half share of the proceeds but it doesn't affect your liability to cgt

John_Pierpoint

There is more to this decision than just Capital Gains Tax.
Any idea about mother's potential liability to Inheritance tax and care home fees?
In the good old days - some time in the last century - you would have been allowed a second tax free home if you used it to house a parent.

Presumably mother thinks of the whole house as "hers"?

Generally speaking "roll over relief" is not allowed on residential land - being a buy to let landlord is not regarded as a normal business.
[Perhaps mum should buy a farm:D]

Mojisola

Before starting to worry, have you worked out whether any tax will be payable? How much has the property increased in price since 2004?

antrobus

Mojisola wrote: »

Before starting to worry, have you worked out whether any tax will be payable? How much has the property increased in price since 2004?

Yes. Given that the OP has a CGT allowance of £10,600, there'd need to be a £42k+ profit on the property before there was any question of there being any CGT due.

Daniel_Elkington

You need to look at the paperwork from your fathers death as there will be something in there valuing the house, which HMRC will have accepted as a reasonable value for the house.

She has no liability as it is her principle private residence (PPR) and can therefore claim 100% relief on Capital Gains Tax (CGT)

You both have an individual CGT allowance of £10,600 in the 2012/13 tax year. As your personal gain is a quarter of the overall gain Antrobus is correct in that the total gain would have to be over £42,400 in order for there to be a potential liability.

Remember that you can deduct the cost of selling the property and the cost of acquiring the property (I'm assuming the solicitor charged you for altering the deed as part of the probate procedure).

Your mother will not be able to claim roll-over relief on any re-investment as she has no gain due to it being her PPR.

There little point claiming any relief on CGT as it merely defers the tax liability. You will have to pay it at some point in the future.

There is no investment which cancels out CGT, other than a loss making one.

The fact that you have had no income makes no difference to CGT.

System

I think the precise wording of yor father's will might be important, and the terms under which your mother was granted exclusive right to enjoyment of the house.

Mojisola

Clifford_Pope wrote: »

I think the precise wording of yor father's will might be important, and the terms under which your mother was granted exclusive right to enjoyment of the house.

I wondered about this. If the will gave the mother the right to live in the house for as long as she wanted, the other owners wouldn't have the right to sell it until the mother was willing.

Would this mean that any liability for GCT wouldn't start until the house went up for sale and so would be nil?

CLAPTON

Mojisola wrote: »

I wondered about this. If the will gave the mother the right to live in the house for as long as she wanted, the other owners wouldn't have the right to sell it until the mother was willing.

Would this mean that any liability for GCT wouldn't start until the house went up for sale and so would be nil?

in general, and without the detail it's impossible to say, but such a situation usually means that upon Mother's death full IHT is payable (because of gifts with reservation) but full cgt is also payable from the date of the father's death.

sadly a lose lose situation.

johnie_the_joiner

Thanks for all your replies.

For your information the gain would be considerably more than £42,400 so it is certainly something we need to take advice on. It is clearly a complex issue and so we are going to meet the solicitor who drew up the will.

Many thanks.

CTA_2

Daniel_Elkington wrote: »

You need to look at the paperwork from your fathers death as there will be something in there valuing the house, which HMRC will have accepted as a reasonable value for the house.

She has no liability as it is her principle private residence (PPR) and can therefore claim 100% relief on Capital Gains Tax (CGT)

You both have an individual CGT allowance of £10,600 in the 2012/13 tax year. As your personal gain is a quarter of the overall gain Antrobus is correct in that the total gain would have to be over £42,400 in order for there to be a potential liability.

Remember that you can deduct the cost of selling the property and the cost of acquiring the property (I'm assuming the solicitor charged you for altering the deed as part of the probate procedure).

Your mother will not be able to claim roll-over relief on any re-investment as she has no gain due to it being her PPR.

There little point claiming any relief on CGT as it merely defers the tax liability. You will have to pay it at some point in the future.

There is no investment which cancels out CGT, other than a loss making one.

The fact that you have had no income makes no difference to CGT.

ROR (Roll over relief) is only available on certain gifts and on reinvestment in the context of a trade so this is not applicable here.

Deferral of the CGT is an option which you may wish to consider, principally being investment in EIS shares which also carry income tax benefits should you have taxable income.