Capital Gains Tax on Sale of Property

Pheath20

Don’t know if anyone could give me any advice please – it concerns Capital Gains Tax.

My mum and dad (who is now in a care home) jointly own a property in London of quite high value.The property was converted by my grandparents in the 1960s into two flats. The house has one outer door and two inner doors. Mum lives in the upper flat and the ground floor flat has been occupied by tenants for many years which mum receives a rental income from.

My question is on the passing away of my mum, something which I hope doesn’t happen for a long time, will there be CGT to be paid on the ground floor flat if I moved into the upper flat for a period of time first and then later sold the whole house? I heard that if I moved into the house and showed i was using the whole house as my primary residence (perhaps using the Ground floor flat as storage) I could then claim Private Residents Relief once I sold the house and not be liable for CGT. Is that correct? The house would be sold as 1 property rather than 2 flats even if I don't recovert it back to 1 house.

However I also have a brother who would likewise be a beneficiary of the house and wouldn’t be moving in so not sure if this changes things as he wouldn’t be able to claim the Private Residents Relief. Would he then need to pay CGT?

We're going to be liable for quite a big Inheritance Tax Bill as it is and was a bit worried there would be CGT to pay on top of it too.

Any advice very gratefully appreciated. Many thanks!

holly_hobby

Pheath20 wrote: »

My question is on the passing away of my mum, something which I hope doesn’t happen for a long time, will there be CGT to be paid on the ground floor flat if I moved into the upper flat for a period of time first and then later sold the whole house? I heard that if I moved into the house and showed i was using the whole house as my primary residence (perhaps using the Ground floor flat as storage) I could then claim Private Residents Relief once I sold the house and not be liable for CGT. Is that correct? The house would be sold as 1 property rather than 2 flats even if I don't recovert it back to 1 house.

Have the title deeds been split ie ground floor flat has its own title deed, and Mums flat has its own ? Or is the whole dwelling still under 1 single deed ?

I assume there is no state funding request for Dads LTC needs - and assume the estate will only pass to you following 2nd death of the couple (ie Dad followed by Mum or vice versa).

Pheath20 wrote: »

However I also have a brother who would likewise be a beneficiary of the house and wouldn’t be moving in so not sure if this changes things as he wouldn’t be able to claim the Private Residents Relief. Would he then need to pay CGT?

CGT calculation is liable on sale of a property that hasn't exclusively acted as the individuals primary residence during their ownership.

In his case it would be based on his share of the gain on sale which would be the difference between market value upon death of the owner (inheritance) and sale - less permittted deductions,reliefs and his annual unused CGT exemption.

Pheath20 wrote: »

We're going to be liable for quite a big Inheritance Tax Bill as it is and was a bit worried there would be CGT to pay on top of it too.

Yes there will be .... definately for bro on his full net share if he doesn't reside pre sale, and for you if you don't qualify for full PRR relief.

IHT is the liability of the deceasd's estate, whilst CGT is the liability of the beneficiaries (when they dispose of the asset, when classed as a chargeable event).

If parents will have a significant IHT liabiity, which can see upto of a 650k net estate exempt (if there is full transfer of unused spousal exemption availalbe and utilised ), then Mum needs to take some professional advice on mitigating what she can now, including annual exempt gift allowances, and other exemptions from regular income (if living standard unaffected).


Hope this helps

Holly

CLAPTON

if the property is jointly owned then surely when your mum passes away your father will own the property?

Pheath20

Thank you v much Holly and Clapton, appreciate the time you've taken to reply.

The whole property is under a single deed as far as I know but will double-check.

sorry, actually that's right my father will own the property after my mum passes away so guess I'm talking about when they're both no longer here although I could still potentially sell it I guess as have Power of Attorney over dad's affairs as he has advanced stage Alzheimers. Not really sure what I'd do to be honest if he outlives mum.

No there's no state funding for dad's care needs, it's all being paid from his savings.

Sorry I'm not terribly good at understanding tax/ financial info - to clarify would my brother's potential CGT bill be the difference between the value of the house on inheriting it and the value on selling? It wouldn't be calculated on it's value at 1982 (read this was relevant somewhere???) And might I quality for the Private Residents Relief if I moved in and used the ground floor flat as storage?

CLAPTON

if the property remains your parents until both pass away then there will be IHT but no cgt.

taxes thereafter will depend upon what you do
if you sell straight away then there are no further taxes


if they /you sell before they die then the exact legal ownership of the property is important

Pheath20

after they both pass away would i not have to live in it though in order to be exempt from CGT?

CLAPTON

Pheath20 wrote: »

after they both pass away would i not have to live in it though in order to be exempt from CGT?

when your parent pass away there is no cgt to pay only IHT

the property passes to the beneficiaries at the 'probate price'


if you don't live there and sell at a price above the probate price then cgt will be applicable (you have a cgt allowance currently 10,900)

the cgt will be based on the gain i.e. the difference between the selling price and the probate price less expenses less 2 x 10,900 (if jointly owned)

Pheath20

Thanks Clapton. I just hadn’t been sure that because the house was split into two flats there could be an issue but was hoping if I used the Ground Floor Flat as storage that might count as me occupying the whole house?


Also wasn’t sure if my brother would be liable to pay CGT as he’s not living there but to confirm he’d have to pay CGT on the difference on the price above probate price?



Sorry, i’m a bit slow understanding these things!

CLAPTON

I'm unsure about the tax position because the house is split into two flats

If the flats have independant existances i.e. can be sold separately then it might be best to each own one fully rather than share both.

If you live in yours then it would be cgt free just like a normal home whilst your brothers' would be liable to cgt

If you shared the whole property then half your flat would be cgt free but all the other would be liable to cgt.

It would probably pay you to get professional advise when the time comes.


In any event the cgt would be based on the gain over probate value.

Pheath20

yes, i'll probably need to get an accountant in when the time comes as think having the house split two flats does complicate it a bit although just checked the house deeds today and it's registered as one dwelling so hope that might be plus point. Would hate to get clobbered for both CGT as well as IHT!

CLAPTON

Pheath20 wrote: »

yes, i'll probably need to get an accountant in when the time comes as think having the house split two flats does complicate it a bit although just checked the house deeds today and it's registered as one dwelling so hope that might be plus point. Would hate to get clobbered for both CGT as well as IHT!

if you brother is joint owner and doesn't intend to live there then if you sell and realise a gain he will be liable to cgt