Capital Gains Tax on House Sale

edited 30 November -1 at 1:00AM in Deaths, Funerals & Probate
6 replies 3.4K views
Judes1727Judes1727 Forumite
21 Posts
edited 30 November -1 at 1:00AM in Deaths, Funerals & Probate
Hello

My mother-in-law sadly passed away recently. She was a widow and lived in a house which is owned by myself, husband, sister-in-law and brother-in-law (4 parties).

The house was originally a council house and under the right-to-buy scheme we bought it for her so it's in our names but there was a Minute of Agreement in place for her to live in it indefinitely. All paperword done through a solicitor, happened about 10 years ago.

So now we have to sell the house and understand there will be a CGT liability on the proceeds (less costs) for selling a second home. However, my husband and I sold our house in January and are currently renting pending the completion of our new house. Does this mean we will be exempt from the CGT as we don't actually own another house at the moment?

Also, any tips on reducing the CGT liability if it turns out we do have to pay it?

Thanks very much.
Judy

Replies

  • Did your Mother in Law pay you market rent ? If not then you've potentially got a reservation of benefits problem and if so then the house will fall into her estate and be liable for IHT.

    If she did pay you rent and you haven't got a reservation of benefit problem then you'll all have CGT to pay based on the difference between the market value when you bought it and the value now. Unless you were living there you won't get any exemption even though you don't own a house. You work out the gain and split it 4 ways and then you each have your annual CGT allowance to take off before working out any gain. Don't forget to add into the purchase cost the legal costs you incurred at the time and you can deduct legal and selling costs form the sale proceeds along with any improvements you've all paid for during your ownership.
  • Judes1727Judes1727 Forumite
    21 Posts
    Thanks very much for your reply.

    There was never any rent paid. However the house would only be worth around £120k and there are no other assets apart from about £3k cash so I assumed that would fall under any IHT thresholds...is this correct?

    Thanks for the clarification on the CGT rules.

    Judy
  • edited 29 May 2013 at 11:46AM
    Mattygroves2Mattygroves2
    581 Posts
    edited 29 May 2013 at 11:46AM
    Was the house ever owned in your m-i-l 's name ? If not then it won't fall into IHT and you've got a straightforward CGT calculation to do. If you've bought direct from the council rather than council - mil- the 4 of you then the base cost for you would be actual amount paid (I think) so you may have enough of a gain to pay tax but you've got at least £40k of allowances (unless any of you have made any other gains in the year you sell).

    IHT threshold is £325,000 (assuming there is no carry over from when your f-i-l died) so it sounds like her estate is well below.
  • Judes1727Judes1727 Forumite
    21 Posts
    No we didn't buy direct from the council. From memory in order to qualify for the tenant discount it was bought in MIL and FIL names but then transferred into our names. The purchase and transfer was all done at the same time through our solicitor.

    But even after the above I assume it's still outwith IHT because of the value?

    Thanks again.
  • Judes1727 wrote: »
    No we didn't buy direct from the council. From memory in order to qualify for the tenant discount it was bought in MIL and FIL names but then transferred into our names. The purchase and transfer was all done at the same time through our solicitor.

    But even after the above I assume it's still outwith IHT because of the value?

    Thanks again.

    Is it owned as tenants in common or joint tenancy? Joint tenants own a place with indivisable shares, tenants in common have a specified percentage e.g. 25% - this is done via Land Registry as a deed of severance. If joint tenancy it may be reasonable to assume 25% of the value belonged to the deceased and it is that value which goes towards the IHT limit. CGT is not applicable on sale of a family home (principal primary residence relief) but would be applicable here - the worst case scenario would be the estate breaks the IHT limit hence 40% on everything over and above, you then sell the house and get nailed for 40% each on anything over and above the CGT limit
  • John_PierpointJohn_Pierpoint Forumite
    8.4K Posts
    Part of the Furniture 1,000 Posts
    ✭✭✭✭
    Is it owned as tenants in common or joint tenancy? Joint tenants own a place with indivisable shares, tenants in common have a specified percentage e.g. 25% - this is done via Land Registry as a deed of severance. If joint tenancy it may be reasonable to assume 25% of the value belonged to the deceased and it is that value which goes towards the IHT limit. CGT is not applicable on sale of a family home (principal primary residence relief) but would be applicable here - the worst case scenario would be the estate breaks the IHT limit hence 40% on everything over and above, you then sell the house and get nailed for 40% each on anything over and above the CGT limit

    It might have been more sensible for mum to have an "interest in possession" trust (that is a life interest but not legal ownership) to hold the home.

    Anyway here is the correction of the potential CGT situation:

    ........the worst case scenario would be the estate breaks the IHT limit hence 40% on everything over and above £325k and probably actually £650k as mum could have inherited dads nil rate allowance too , you then sell the house and get nailed for 18 or 28% each on anything over and above the CGT limit currently £10,900 each depending on you income tax rate and the size of the gain added to your income.
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