Capital Gains Tax

Laurajo_2

Tenants in common means that when the owner dies, they can pass there share on as they wish. Joint ownership means that when the owner dies, there share automatically passes on to the co-owners.

And I've noticed I've messed up some of the fractions, anyway.

Say, when the house was purchased, she acquired 1/3, which is probably the most reasonable initial assumption. Say the house was bought for 30k. Her base cost for that 1/3 would be 10k.

When your grandfather died, did his share of the house pass to your mother, your grandmother or both equally? (This is where the tenants in common or joint ownership may be an issue). Assuming it passed equally to the surviving owners, she will have been deemed to acquire half of your grandads 1/3 and the base cost for this will be probate value. Say the probate value was 40k, her base cost for this (1/6) would be £6,666.

So, between your grandfathers death and your grandmothers death, she will have owned half the house. She will have then inherited the other half on your grandmothers death, half of the value being £37,500.

Therefore, for cgt purposes, based on the example above, her base cost for the whole of the property will be £10k plus £6666 plus £37,500, plus the £35,000 spent on repairs.

Of course, the values for he purchase cost and probate value on your grandfathers death are totally made up.

Given that the quantifiable costs (the value at your grandmothers death and the extension costs) are 72,500 and the market value is 85,000, it is highly unlikely there will be any tax to pay.

I am assuming that the 85k represents true market value and she is not selling it to you at a discount?

Whippy1980

Laurajo wrote: »

Tenants in common means that when the owner dies, they can pass there share on as they wish. Joint ownership means that when the owner dies, there share automatically passes on to the co-owners.

And I've noticed I've messed up some of the fractions, anyway.

Say, when the house was purchased, she acquired 1/3, which is probably the most reasonable initial assumption. Say the house was bought for 30k. Her base cost for that 1/3 would be 10k.

When your grandfather died, did his share of the house pass to your mother, your grandmother or both equally? (This is where the tenants in common or joint ownership may be an issue). Assuming it passed equally to the surviving owners, she will have been deemed to acquire half of your grandads 1/3 and the base cost for this will be probate value. Say the probate value was 40k, her base cost for this (1/6) would be £6,666.

So, between your grandfathers death and your grandmothers death, she will have owned half the house. She will have then inherited the other half on your grandmothers death, half of the value being £37,500.

Therefore, for cgt purposes, based on the example above, her base cost for the whole of the property will be £10k plus £6666 plus £37,500, plus the £35,000 spent on repairs.

Of course, the values for he purchase cost and probate value on your grandfathers death are totally made up.

Given that the quantifiable costs (the value at your grandmothers death and the extension costs) are 72,500 and the market value is 85,000, it is highly unlikely there will be any tax to pay.

I am assuming that the 85k represents true market value and she is not selling it to you at a discount?

she is selling it to me for 60k but i know for cgt only the markey value matters which is 85k. Thanks for the reply by the way

Whippy1980

oh and to answer your other question my mam does not even understand what was passed to her as she forgot all about it once putting her name to the mortgage. Her solicitor suggested it was passed will have been equally though

Laurajo_2

To be honest, i don't think it will make a huge difference either way. Any gain she makes will most likely be covered by the annual exemption, looking at the figures we do have.

Hopefully your mums solicitor will be able to sort it...

Whippy1980

Laurajo wrote: »

To be honest, i don't think it will make a huge difference either way. Any gain she makes will most likely be covered by the annual exemption, looking at the figures we do have.

Hopefully your mums solicitor will be able to sort it...

This is it though solicitor has told us to sort it ourselves! (after a run in with my mam mind you)

So what should we do next?
wait for hmrc?
ring them?

jimmo

As things stand on here I am inclined to disagree with Laurajo’s view and think it is very likely that your mam had no beneficial interest in the house until your nan died in 2008.

However, for the time being at least, it would be wise to consider both alternatives.

Using my approach your mam would only need to establish market values for the house on the date she inherited it in 2008 and the date she gives/sells it to you. Then the capital gains computation will be just sums but more on that later.

Using Laurajo’s approach your mam will need valuations for the original purchase, 31 March 1982, the date your granddad died in 1992, 2008 and the date of disposal to you. It also needs to be established whether your nan or granddad reached the age of 65 before 6 April 1998. If either or both of them did your mam will have a claim to dependent relative relief.

http://www.hmrc.gov.uk/manuals/cgmanual/CG65550.htm



Also, because your mam actually lived in the house at the time of purchase, she will have some entitlement to private residence relief.

If I have explained that clearly you will see that my preferred approach is much simpler than Laurajo’s but, because it depends on the figures, I don’t think it is currently possible to judge which method will produce the lower tax bill.

Now, coming back to the valuation issue, you say that the house was worth £75,000 in 2008, £35,000 was spent on improvements but there are no receipts and now, 5 years later, it is worth £85,000.

Really? How would you realistically expect HMRC to react to those figures? If they see them there is a very good chance that your mam will be subjected to an enquiry and the lack of receipts will be a major problem for her. Incidentally, on your other thread you said it was £25,000 for the improvements and the current value is £95,000.


https://forums.moneysavingexpert.com/discussion/4161561=


Whilst I appreciate it can be difficult you really have to get your act together and be consistent because if you give duff information on here you will get duff advice, but more importantly, if your mam gives duff information to HMRC and they pick up on it, she will really suffer an awful more.

holly_hobby

jimmo wrote: »

Also, because your mam actually lived in the house at the time of purchase, she will have some entitlement to private residence relief.

Jimmo, quick question on the above, if claiming BO from a later period, are you crystal she can apply PRR exemption to gain, given that the nominated PRR period would actually predate her period of beneficial ownership (should HMRC agree she can evidence BO only commenced some yrs after actual acquisition ie when Dad passed or as when I would consider claiming it from, 2nd death when Granny subsequently died, which actually freed up the house for Mum to exercise her BO rights).

Holly

John_Pierpoint

jimmo wrote: »

.
It also needs to be established whether your nan or granddad reached the age of 65 before 6 April 1998. If either or both of them did your mam will have a claim to dependent relative relief.

http://www.hmrc.gov.uk/manuals/cgmanual/CG65550.htm

Is 1998 a typo for 1988 as the last date for establishing the start of dependent relative relief ? [or is it even more complicated than I thought it was]

Whippy1980

jimmo wrote: »

As things stand on here I am inclined to disagree with Laurajo’s view and think it is very likely that your mam had no beneficial interest in the house until your nan died in 2008.

However, for the time being at least, it would be wise to consider both alternatives.

Using my approach your mam would only need to establish market values for the house on the date she inherited it in 2008 and the date she gives/sells it to you. Then the capital gains computation will be just sums but more on that later.

Using Laurajo’s approach your mam will need valuations for the original purchase, 31 March 1982, the date your granddad died in 1992, 2008 and the date of disposal to you. It also needs to be established whether your nan or granddad reached the age of 65 before 6 April 1998. If either or both of them did your mam will have a claim to dependent relative relief.

http://www.hmrc.gov.uk/manuals/cgmanual/CG65550.htm



Also, because your mam actually lived in the house at the time of purchase, she will have some entitlement to private residence relief.

If I have explained that clearly you will see that my preferred approach is much simpler than Laurajo’s but, because it depends on the figures, I don’t think it is currently possible to judge which method will produce the lower tax bill.

Now, coming back to the valuation issue, you say that the house was worth £75,000 in 2008, £35,000 was spent on improvements but there are no receipts and now, 5 years later, it is worth £85,000.

Really? How would you realistically expect HMRC to react to those figures? If they see them there is a very good chance that your mam will be subjected to an enquiry and the lack of receipts will be a major problem for her. Incidentally, on your other thread you said it was £25,000 for the improvements and the current value is £95,000.


https://forums.moneysavingexpert.com/discussion/4161561=


Whilst I appreciate it can be difficult you really have to get your act together and be consistent because if you give duff information on here you will get duff advice, but more importantly, if your mam gives duff information to HMRC and they pick up on it, she will really suffer an awful more.

Thanks for your reply. In terms of my previous thread there was a lot of guess work going on there as we had nor formal figures or valuations at that time and the 25k in improvements was more realistic taking into account some of the 35k was spent on decorating. It is an issue there are no receipts im sure but 5 years down the line none of this crossed our mind. My mam can prove that she obtained a 35k remortgage and used none of this for herself. I dont know whether getting written quotes for the work we got done would be appropriate?

In any case if we go down the route you recommend and only require valuations from nannas death to now its straight forward sum of 75k and 85k thus no cgt anyway.......

Whippy1980

oh and my grandad died 1992 aged 73 and my nanna was over 65 too (whether it be 1988 or 1998)