CGT on inherited property

johncrossy

Hello friendly and brainy people, your help on the below would be greatly appreciated.

I'm managing the sale of my mum's second property which has just gone under offer and wanted to understand roughly how much CGT she'd have to pay.

The property belonged solely to her dad (my grandfather) until his passing on 25/12/97. He left the property to my mum and her brother in equal 50% shares with a life interest in the property to my grandmother.

My uncle (the other 50% owner of the property) passed away 17/2/10, leaving his 50% share to my mother, making her 100% owner from this point.

My grandmother has recently moved into a care home on the advice of our local social services so the property has been put on the market and we've just received an acceptable offer of £270k.

According to Nationwide, the property was worth ~£75k at the point of my grandfathers death.

What would be helpful to understand is a rough calculation of how much CGT is owed by my mum on completion, bearing in mind her 50% inheritance of a property worth £75k from 25/12/97. To then inheritance of the other 50% of the property from 17/2/10.

Any pointers greatly appreciated!

silvasava

Did your Mum live in this property at all? If so that may also have a bearing on CGT. I don't know enough to advise you but I'm sure there will be someone here who has more experience to help

zygurat789

To establish a gain first establish the cost.
When someone dies an account of their estate is prepared usually by an executor under the will. This account will include the house and a valuation which will have been used to determine if your grandfather's and uncle's estates were due to pay IHT. This wil be the basis of the cost.
The gross gain will be the proceeds from the sale after all costs, solicitor & estate agent etc. have been deducted. Take the cost from the gross gain to arrive at the taxable gain. Deduct the exempt amount £10,900 and the remainder is taxed at 18% and 28% according to the income tax bands.

zygurat789

There are quite a few other things that would be good to know:-
1. As in post #2 above
2. Was the property rented?
3. Approx how much is your mother worth?
4. Does your father feature anywhere in this?
All the above may have a bearing on tax payable and as a result which course of action yiou should take.
.

John_Pierpoint

Surely it is grandmother who is the beneficiary of an interest in possession trust?
As the house has up to now been the principle private residence of grandmother, it is probably grandmother who is selling from the tax man's point of view and hopefully the tax is zero.

Who is the executor of grandfather's will?
Exactly what does it say about grandmother's life interest - seeing as she is still alive?
Presumably grandfather did not believe in any of this modern nonsense about the little woman owning half the family home?
What other assets does grandmother have in her own name?
I think mother might be jumping the gun.

Hopefully Jimmo will be along in a moment to explain how the tax man would judge the situation.

holly_hobby

Check out the attached ...http://www.hmrc.gov.uk/helpsheets/hs294.pdf
Hope this helps

Holly

jimmo

John_Pierpoint wrote: »

Who is the executor of grandfather's will?
Exactly what does it say about grandmother's life interest - seeing as she is still alive?

You’ve asked the right questions, John (though your logic on ownership is a bit flawed). They need to be answered.

Hopefully for the beneficiaries grandfather’s will does give grandmother a life tenancy in the property. If so, the trust will be an express trust which is the easiest thing to deal with for CGT purposes. I imagine it is the same for IHT but I am definitely no expert there.

If grandfather’s will does not actually evidence an express trust it may still be possible for the beneficiaries to evidence (in writing) an express trust but time may not be on their side.

http://www.hmrc.gov.uk/manuals/cgmanual/CG65406.htm


If not, they may be able to evidence an implied trust. That is normally rather tricky but may well be achievable.

http://www.hmrc.gov.uk/manuals/cgmanual/CG65415.htm


Assuming that the existence of a trust can be established that will establish the right to Private Residence Relief for the period of occupation by grandmother (plus of course, the final 3 years of ownership).

http://www.hmrc.gov.uk/manuals/cgmanual/CG65400.htm


Certainly at this stage, I am not knowledgeable enough to know whether the termination of grandmother’s occupation will have triggered a transfer of beneficial ownership to the residuary beneficiaries at open market value at that date or at market value at the date of grandfather’s death. Hence I cannot say whether the trustees realised a Capital Gain or whether the residuary beneficiaries will realise a Capital Gain from the date of grandfather’s death to the date of eventual sale.

However, given present market conditions, it seems very unlikely that any CGT will be payable in any event.

This is all tied in with 2006 alterations to both CGT and IHT for trusts and, as I retired in 2006, is beyond my professional experience.

A bit of homework if you want it.

http://www.hmrc.gov.uk/manuals/cgmanual/CG36525+.htm

xylophone

I think that you need to look at the precise wording of your grandfather's will.
Life interest of residue or Right of residence?
http://www.primewills.co.uk/will_writers_cambridge.htm#Right of Residence Clause

johncrossy

Wow, I knew it was going to be complicated but...

Ok, in answer to the various questions:

My mum did live at the property but when she grew up (guessing 1954-1976 ish)
The property has been owned from day 1 by my grandfather. It was my uncles primary residence at the time of his death (he had lived there many years) and has been my grandmothers primary residence until she moved into the home, although she hasn't been an owner as it were.
My mother is probably worth somewhere in region of £300-350k (guess)
Father does not feature...
Grandmother is worth £40k ish however this is reducing rapidly due to cost of care home
Executor of Grandfathers will were my uncle (and poss my mum - don't have will to hand)
Will also need to check what grandfathers will states regarding life interest

Just to point out, as I fear it may be confused, grandmother is still alive, but living in care home since March 2013. Grandfather died Dec 1997, Uncle died Feb 2010.

Thanks everyone for all your input so far!

johncrossy

jimmo wrote: »

This is all tied in with 2006 alterations to both CGT and IHT for trusts and, as I retired in 2006, is beyond my professional experience.

Jimmo, thanks for all our help. As you've now retired, can you recommend anyone/any firm who can officially handle this for us?

zygurat789

So your mother owns two houses one of which is worth about £270K and, in total, has about £350K?? I was wondering if IHT wouldn't be cheaper than CGT but perhaps not. A deceased father may have increased the IHT nil band.
Whio has lived in this house since 2010?