Capital Gains Tax

DAV122

So in other words i need a good solicitor

DAV122

So in other words i need a good solicitor. And my step grandfather is still alive and has moved to a home.


I was just playing around with figures before to understand the concept. These are the real figures. I plan on moving in for 1year, and doing some work on the house. Would anyone be able to confirm if I got these approximately correct:


Property value = 170000
Value upon inheritance = 40000
Personal allowance = 21800 (father & mother now on the deeds)
Improvements made = 20000 (5000 previously, 15000 to be completed)
Costs over 1 year = 19297 (15k of improvements, rates, insurance etc etc)
Income = 1260 (10700 income - 9440 personal allowance)

Taxable amount = 170000 - 40000 - 21800 - 20000 = 93200

Amount taxable at 18% = 34370 - 1260 = 33110
Amount taxable at 28% = 93200 - 33110 = 60090

Capital gains tax = (0.18*33110) + (0.28*60090) = 5960 + 16825 = 22785


My father is 70yrs old and retired. Not sure this has any impact on income figures

John_Pierpoint

...and accountant...and surveyor.

Before paying out for that lot the first thing I would do is get a copy of grannie's probate and see if that gives you a steer. It might have a will attached in which a trust is created for the benefit of step-grandfather or an intestacy where step-grandfather and the rest of the family agree that he was entitled to "a life interest in half the remainder" which was in reality the house; but the family agreed it was only fair that he could occupy the whole house rather than be forced to downsize to a flat?

You need to sort out the legalities of what has happened before you can estimate the tax payable - the Land Registry and the Probate Registry are not a definitive statement of the legal position but their information is a good cheap starting point.

Was dad involved in his mother's probate, preferably as executor and hopefully thus understanding what happened and was agreed with grandmother and the family of her final husband ? Perhaps he has copies of all the paperwork involved?

You have not answered the questions about what became of step-grandfather :question:

nomunnofun

DAV122 wrote: »

Income = 1260 (10700 income - 9440 personal allowance)

Taxable amount = 170000 - 40000 - 21800 - 20000 = 93200

Amount taxable at 18% = 32010 - 1260 = 30750 Amount taxable at 28% = 93200 - 30750 = 62450
Capital gains tax = (0.18*30750) + (0.28*62450) = 5535 + 17486 = 23021
My father is 70yrs old and retired. Not sure this has any impact on income figures

You have used the wrong basic rate band. Additionally your father would be entitled to age allowance and I am trying to frantically remember if the CGT affects this! I am sure someone else will update me before I find out definitively.

DAV122

I'm probably beginning to sound like I don't know what I'm doing. well I don't actually. I find all this incredibly confusing, and I thank all those who have taken the time to answer my questions.

Even when I've been saying stepgrandad that's probably wrong. They lived together for over 50 years, but never married. So technically he's not even my stepgrandad. Secondly, my grandmother never made a will. My dad and his brother handled the probate but just had an agreement my "stepgrandad" should live there as long as possible. No paperwork.

There are only bills etc proving he lived there.

grey_gym_sock

you say father and mother both own the property now. and you've included 2 annual CGT allowances. but only 1 basic rate band.

if they own part of it, it should be a separate calculation for each owner. divide the gain between them (50/50, assuming they own it 50/50). then each deducts an annual CGT allowance. then each has however much of the basic rate band they haven't used elsewhere. (so less tax at 28%.)

John_Pierpoint

Don't give up, your are doing well, just remember there is no logic to tax, just a set of rules, with arbitrary outcomes.

Remember: "If you are not pretty confused, you obviously have not begun to understand the situation".

John_Pierpoint wrote: »

Jimmo, is quite right to query the legal arrangements (if any) behind stepgrandfather's occupation of the property, there might be an interplay between CGT and IHT and the dates could be significant, though property prices are no longer changing rapidly as they once were.

I once found myself trying to argue that a "relative's" home had increased by nearly 20% in a year since their departure (in a coffin), as that increase spread amongst the beneficiaries (and their spouses) now beneficially owning the property, would be free of CGT. - after a bit of haggling with what was called the district valuer in those days, we settled on 15%.

And on behalf of the estate I paid IHT on most of the 5%. :mad::D

.

I am not sure that this little story will be of a great help to you, but there are some similarities between your situation and mine some 15 years ago. The differences are that back then the nil rate band for IHT was something like £200k not the £325k now and the CGT rate was effectively more like the 40% rate of IHT now, for most tax payers.

I have referred to the lady in the story above as a great aunt for the sake of simplicity, but basically she came from a poor bohemian background and there was no piece of contractual paper formalising her transfer from the status of spinster with one family to childless widow of another; though physically she acquired the status "companion" to my widowed grandmother. The arrangement was she could stay on in the house, should my grand mother be the first to die (not a foregone conclusion).

In the event "auntie" out lived "nan" by more than 25 years and was just about to get her telegram from the Queen.

In the meantime "nan's" two children had both died; and I by force of circumstances, had taken on the task of trying to keep the roof over "auntie's" head. "Auntie's" net wealth actually turned out to be about £20k, (the proceeds accumulated from renting out room(s) ?), but this passed to "auntie's" blood niece.

Why the arrangements had been made like this, I have no idea, but I had previously extracted a copy of grandmother's will and a copy of the land registry entry [to try to understand my personal position and because at the age of 21 I had been suspicious that my widowed mother, my sister and I might not be getting an equitable treatment under the terms of grandmother's will.]

Well the Land Registry still thought the house was owned by my long dead grandmother, meanwhile the will had instructed the executors to grant an annual furnished tenancy to "auntie", renewable on demand at a rent £1 a year. This had never been done either.

So I thought, where shall I start, that won't cost me money up front.
So I telephoned the capital taxes office at Nottingham and explained predicament and a very reasonable officer in Nottingham asked for a copy of my documentation?

He rang me back and after we had run through the documentation [and I had demonstrated my ignorance] we agreed to treat the situation as though "auntie" was the beneficiary of an interest in possession trust. (that is a life interest trust where the beneficiary can use the asset as though it was their own, but they cannot realise (or "waste") the capital or leave it to someone else in their own will).

Perhaps "Jimmo" could explain what should happen next, under current legislation ?

Meanwhile you still have not explained what happened to "step grandfather" it just might be relevant;)

DAV122

Hi John

Actually I did a few posts back. "my step grandfather is still alive and has moved to a care home."

I should stop calling him that to make things simpler for you guys, as I assume being my stepgrandfather means he married my grandmother which he never did. I've just always thought of him as grandad as I never knew my real one.

I won't give up but my head is starting to hurt

Another alternative which I don't even know if is possible is to have the house ownership transferred to me as my main residence, which it will be, then if I sell it in a few years, just give the money back to my father. Assuming they'll cotton on and slap capital gains onto one of us.

Otherwise I'll get onto the tax office and land registry.

Land_Registry

DAV122 wrote: »

Another alternative which I don't even know if is possible is to have the house ownership transferred to me as my main residence, which it will be, then if I sell it in a few years, just give the money back to my father. Assuming they'll cotton on and slap capital gains onto one of us.

Otherwise I'll get onto the tax office and land registry.

If you need to check who is the current registered owner for the property (title) then you can do this via the link provided in our FAQ - the fee for checking the register online is £3

If you already know who is registered but they want to transfer the title then there is a further FAQ which explains how the property can be transferred.

If the property is still registered in the name of someone who is now deceased then this third link will explain the various options available to you with regards the legal title and transferring it to the beneficiary or a third party

Note - Land Registry will only up date the register following the registered owner's death if they are advised through an application either to record the death or to transfer the title as mentioned above. There is no direct link between registering someone's death and amending the registered title.

The online informaiton will hopefully help but if after reading the relevant parts further questions arise with regards how to complete the forms (if any) and/or lodge an application then please Contact Us - do bear in mind though that we cannot provide legal advice

John_Pierpoint

DAV122 wrote: »

Hi John

Actually I did a few posts back. "my step grandfather is still alive and has moved to a care home."

I should stop calling him that to make things simpler for you guys, as I assume being my stepgrandfather means he married my grandmother which he never did. I've just always thought of him as grandad as I never knew my real one.

I won't give up but my head is starting to hurt

Another alternative which I don't even know if is possible is to have the house ownership transferred to me as my main residence, which it will be, then if I sell it in a few years, just give the money back to my father. Assuming they'll cotton on and slap capital gains onto one of us.

Otherwise I'll get onto the tax office and land registry.

Ah I see what happened you and I were posting at the same time, so I missed your explanation of [not]step-grandad moving to a care home.

It is looking like there is no trust arrangement in place, not even a deemed one, but if that is the case [not]step-grandad; must have felt very insecure, when the intestacy rules transferred the ownership of grandmother's property to her children. Is your father an only child?
[This is a particular problem for unmarried couples with no children and no will, where the property can reverts backwards to the parents of the deceased, and if they are already dead then rolls forwards as if they had died intestate. (Different rules apply in Scotland). The sister might not be very sympathetic towards her late brother's bereaved girl friend, now squatting in her house]

There have been three changes in the last 10 years:
In 2006 Gordon Brown "rationalised" the tax treatment of trusts.
In 2007 Gordon Brown made the unused percentage of the IHT nil rate band transferable between spouses (and other legal unions) creating currently £650k of potential intergenerational tax free wealth transfer.
In 2009 the Land Registry extended the legal events that needed to be recorded on the register - these now include changes in trustees when real estate is owned by a trust.
Perhaps the Land Registry Representative can explain how this can be enforced?

As members of a family you and your father need to agree on your objectives.
Presumably your would like to own your own principle private residence and your father would like to avoid as much CGT and IHT as possible.
Somehow you need to find a competent financial adviser and both put your cards on the table.