CGT on a jointly inherited property

jocstoke

Hi, I'm trying to work out if my husband will be liable for CGT and I'm getting rather confused so any advice would be very much appreciated.

Last year my mother in law died. She was the sole owner of a house that she'd lived in and brought up her two sons in. They were the sole beneficiaries of the will with a 50/50 split.

After her death my brother in law moved into the property. It was valued at £250k so below the IHT threshold. The property was very run down and needed a lot of work doing to it. It was agreed that my brother in law would complete this work, and instead of paying us any rent would put the money into the removations (we agreed a sum of £400 being appox 50% of the market rate for rent).

When the property is sold in a year or two, will my husband be liable for his half of the capital gain? Will the expenditure on the property have any relevance?

My brother in law thinks that as my husband used to live there he will be exempt from CGT as we can state that he no longer lives there as he works away. We've lived (and rented a house) in Manchester for 6 years and the property is in London. However I'm sure that it goes on where you live and that excuse won't fly.

Thanks again for any help and advice.

nomunnofun

Keeping it simple -

1) As the house has never been your husband's main residence while he owned the property, he is not entitled to private residence relief and your brother-in-law is incorrect.

However, the capital gain will be calculated as follows:

Sale Proceeds less costs of sale less renovation costs less value at inheritance. Obviously these will all be divided by two.

So, if the sale price is £285000 with £5000 legal costs and £10000 of renovations the gain will be £285000 - £5000 - £10000 - £250000 = £20000. Half of this is £10000 which would be covered by your husband's Capital Gains exemption of £10900 at the moment.

The issue regarding renovations and your brother-in-law's rent looks complicated - clarity is needed.

jocstoke

Thanks for the reply, that's very helpful.

To clarify the rental situation. We are not currently in a position to pay half the renovation costs. My brother in law is therefore paying for all of these. Once the property is sold, he will reclaim the expenses from the proceeds, but first deducting an amount for the number of months he lived in the house x £400 per month. So for example, if the renovation costs £15k and takes 2 years, he would get back 15k - (24 x £400) = £5,400.

Having written this down, I'm starting to wonder why we decided to do it like this, and if it would be better/easier for us to just repay him half the renovation costs on selling the property.

nomunnofun

The costs of the renovations are what matter - not the arrangement with the brothers. I would caution that things could get complicated if you try to claim undocumented expenses such as the cost of his labour.

zygurat789

So, is there a tax liability on £4800pa notional rent?

grey_gym_sock

rent is taxable, even when it is paid in kind, rather than in cash. which is why you probably don't want to look at it as rent. i don't see why you'd have to. there is nothing dodgy about 2 people owning a property, but only 1 being resident there, with no rent being paid.

when the sale proceeds are divided unequally, part of this will reflect the cash that only 1 brother has put into the renovations. i'm not sure if you have to account for the rest of the difference in any specific way (?). if in doubt, it could perhaps just be a gift between the brothers.

nomunnofun

grey_gym_sock wrote: »

rent is taxable, even when it is paid in kind, rather than in cash. which is why you probably don't want to look at it as rent. i don't see why you'd have to. there is nothing dodgy about 2 people owning a property, but only 1 being resident there, with no rent being paid.

when the sale proceeds are divided unequally, part of this will reflect the cash that only 1 brother has put into the renovations. i'm not sure if you have to account for the rest of the difference in any specific way (?). if in doubt, it could perhaps just be a gift between the brothers.

That is what I meant when I referred to complications. If it were me I would like to think that there would never be a mention of any rent at all (zygurat789 has stated what many would consider the main issue). When the property is sold, and the proceeds split equally, surely some recognition of the work carried out by the brother-in-law can be dealt with at that time under a gentleman's agreement?

xylophone

Did this house become your brother-in-law's principal private residence when he moved in and will it be between now and the date of sale?

Mojisola

nomunnofun wrote: »

surely some recognition of the work carried out by the brother-in-law can be dealt with at that time under a gentleman's agreement?

Whatever you do decide, put it in writing!

John_Pierpoint

We explored some of this in a similar thread a couple of months ago, using last year's nil rate band of £10,600, now £10,900, for CGT:

https://forums.moneysavingexpert.com/discussion/4474589

We've lived (and rented a house) in Manchester for 6 years and the property is in London. However I'm sure that it goes on where you live and that excuse won't fly.

You can nominate which property you want to be your principle private residence and if your job forces you to live somewhere else (for example of you have to live in tied accommodation, it is allowable to have a rented out retirement home somewhere nice, that still counts as CGT free.)

http://www.hmrc.gov.uk/manuals/cgmanual/cg64420.htm

jocstoke

Thanks all for your further responses.

xylophone wrote: »

Did this house become your brother-in-law's principal private residence when he moved in and will it be between now and the date of sale?

Yes it did.