ex council house inheritence

sanibinman

hi me and the mrs bought her perents council house for them 8 years ago
we gave them the money and they used their discount percentage to purchase the house for 15,000 pounds
plus we put new windows for 5000 pounds
we had a contract drawn up by the soliciter so that after 3 years
the house deeds would be put into me and the wifes name
this also allowed them to live rent free for the rest of their lives
my father in law died about 5 years and recently my mom in law passed away
we need some advice about the house in question
me and the wife have a marital house that has 3 years mortgage left
can we sell the in laws house without paying any tax
it is valued at 100,000
or
if we sell both houses and buy another
would will pay any taxes
or
if we sell the marital home and moved into the in laws house
would we pay any tax
it is worth about 80,000
i never had much money and the intial outlay to buy the in laws house was itself a inheritence
my dad died when i was teenager
any advice would be helpfull

00ec25

you own 2 houses therefore a re liable for Capital Gains tax on one of them

the one you live in is your marital home (worth 80,000) and can sell this free of any Capital Gains Tax as it is exempt from CGT since it is your main home and so gets "Private Residence Relief" (PRR) whilst (in simple terms) you live in it

you have never lived in the other house which you have now owned for 5 years (the date of transfer from the in laws). prior to that they owned it. The agreement you had with them concerning them transferring it to you after 3 years does not alter the fact you did not own it for the first 3 years. Therefore any improvements made to the house were in fact you making a gift to them, so the 5,000 cost of the windows is not something you can now claim since it was spent on a house you did not own. It is just like you giving them a 5,000 cash lump sum or an expensive Xmas present.

Now you are liable for CGT on the other house starting from 5 years ago. This wil be the differnece between its purchase price and its selling price. The purhcase price is its market value at the time it was transferred to you, not the 15K they paid for it. So likely its quite a bit more than 15 k since if they had sold it at that time it would be priced at full market price not the heavily discounted price they paid the council
The taxable gain is thus:
price you sell it for (100,000) - value at time you became its owner (15,000 + ?) = taxable gain

as it is jointly owned with your wife you will be taxed individually as follows:
taxable gain / 2 to get your and her share of the gain

from your share you then deduct your personal allowance (10,600), the remaining figure is the amount you will pay tax on
the tax rate will be 18% or 28% depending on your total income that year

if you move into the in laws house and sell your own whilst doing so then you will only own 1 house and it will be eligible for PRR from the date you move in. When you sell it you will get PRR for the entire time you lived in it plus the final 36 months ("3 year rule") you owned it, however where those 2 period overlap they cannot be counted twice. So example:

eg 1: move in now, sell in 1 years time : you've then owned it for 6 years of which 3 will be classed as PRR under the 3 year rule (ie 1 year living in is < 3 years so you get the full 3 years) so 3/6 (50%) will be exempt and 3/6 of the gain will be liable to CGT.

eg 2: move in now, sell in 4 years time : owned for 9 years of which 4 years lived in so 4/9 (44%) exempt and 5/9 (56%) liable for CGT. In this eaxample the 3 year rule overlaps with you period of occupation so you only get 4 years PRR not 4 + 3

Fire_Fox

Buying a council house with someone else's discount is against the rules, this should never have bee done in the first place.

junglejim2

Buying a council house with someone else's discount is against the rules, this should never have bee done in the first place.

The house wasn't bought using someone else's discount.

The tenants exercised their right to buy, with a discount, using funds that had been given to them.

And by the way, good luck to them.

seven-day-weekend

junglejim2 wrote: »

The house wasn't bought using someone else's discount.

The tenants exercised their right to buy, with a discount, using funds that had been given to them.

And by the way, good luck to them.

We did this too, we provided my husband's mother with the funds to buy HER council place in HER name using HER discount. Nothing wrong with that. My husband inherited it when she died.

To the OP, you will have to pay CGT on the house you do not live in.

Fire_Fox

sanibinman wrote: »

hi me and the mrs bought her perents council house for them 8 years ago
we gave them the money and they used their discount percentage to purchase the house for 15,000 pounds
plus we put new windows for 5000 pounds
we had a contract drawn up by the soliciter so that after 3 years the house deeds would be put into me and the wifes name
this also allowed them to live rent free for the rest of their lives
my father in law died about 5 years and recently my mom in law passed away
we need some advice about the house in question

junglejim2 wrote: »

The house wasn't bought using someone else's discount.

The tenants exercised their right to buy, with a discount, using funds that had been given to them.

And by the way, good luck to them.

It was not a gift there were strings attached.

newbutold

If they sell the martial home and move into the ex council house & then sell that, would they then not have to pay CGT?

leveller2911

seven-day-weekend wrote: »

We did this too, we provided my husband's mother with the funds to buy HER council place in HER name using HER discount. Nothing wrong with that. My husband inherited it when she died.

To the OP, you will have to pay CGT on the house you do not live in.

Did she need to buy the house?, couldn't she have kept on renting it for the rest of her days?.. Sounds typically like you didn't buy it for her you bought it for you.

I'm sure you played within the rules but its a shame thats one less Council house available for a family who needs one, still I'm sure you will make a good profit from it, which is the main thing.;)

thelem

Is the estate liable for capital gains tax for the first three years?

seven-day-weekend

leveller2911 wrote: »

Did she need to buy the house?, couldn't she have kept on renting it for the rest of her days?.. Sounds typically like you didn't buy it for her you bought it for you.

I'm sure you played within the rules but its a shame thats one less Council house available for a family who needs one, still I'm sure you will make a good profit from it, which is the main thing.;)

My m-i-l wanted us to buy it as she could not afford the rent. (slightly too much income to claim Housing Benefit). We had a family conflab and decided as a family that we would provide the cash and she would live in it until she died and then leave the place to my husband, he is an only child.

She died in 1998 and we rented it out for several years (at the same rent as if it was still a council property). The we sold it for £35,000 in 2003 and have recently given our son a similar amount of money to use as a deposit to buy a flat and to extend the lease. So it has not just been money in our pockets.

Also, it is a small bunglaow, not suitable for a family.

Just to explain, I don't particularly agree with RTB, (and especially not the discounts), but it was a better way of doing things than just helping her with her rent. And it was what she wanted, she wanted her grandson (our son) to have something, which he now has.

That was just how our family decided to do it.

charlieismydarling

This is why so many of us disagree with RTB. The abuse and profiteering by family buying elderly relatives' houses for inheritance purposes is despicable and manipulating the resources that are state owned for their own personal gain.

I wish councils would regulate this more stringently to prevent this.