Capital Gains Tax

Laurajo_2

She won't be able claim that she wasn't a beneficial owner for the period she lived there, either, so that part of the gain my come into charge.

Beneficial ownership is going to be a struggle unless there was anything written down that your mam would have no interest in the house had it been sold whilst her parents were alive she wouldn't be entitled to her share of any proceeds. I think arguing this is likely to lead to an enquiry and if the gain is under the annual exemption, not worth the hassle.

You need to speak to a professional and get all the facts and figures together. Ultimately, you are in a grey area and if you go the wrong route it could end up costing you more in professional fees than capital gains tax.

John_Pierpoint

The average house is now back up to its pre-global economic crisis level (in terms of devalued £s); however there are many parts of the UK where this does not (yet?) apply.
Roughly where in the UK is the house in question?
http://www.zoopla.co.uk/home-values/

If you can go down the second CGT free home for a dependent relative route, where the dependency is being a pensioner over 65 rather than a widow of any age at the cut off [Very sexist by modern standards ] Then that gets your mum to 2008, when the dependent died. So unlikely to be a query if your mum's share is sold at a bit over nanna's probate value.
However I am an amateur, jimmo is a retired tax man, so the choice of argument is your mum's.

It is probably irrelevant, but does mum have a husband ?
What does the Land Registry currently record as the ownership of the property ? [That will cost your debit card £3 on-line].

Savvy_Sue

If going back to the solicitor isn't going to happen, then you (or more properly your mum) could talk to an accountant about this: I'd go for a STEP qualified one, and your mum needs the attitude of "I need to establish whether or not I have a CGT liability, and if so how much, here are the facts" rather than "I don't see why I should have to pay any CGT because it was never really my house until I inherited it."

She may well have to pay for this advice but equally it should save money / time / hassle / grief in the long run.

holly_hobby

I totally agree that trying to mitigate CGT under BO regs may be very difficult given the paramaters, and if BO is only cited from Grandads death (even though Granny was still alive and resident), then I think it may raise more questions than solve. If I was going for BO I would cite it from grannys death only - as it was only at that point that I would have be able to reap any benefits from ownership, ie being able to profit from sale, able to rent out for gain, etc.

The initial primary residency term (whilst being a legal owner and citing no BO during that period) muddies the waters somewhat, having said that being resident (even as an joint owner) may not denote automatic BO, which as we know is the true basis of CGT liability, but very muddy given the underlying arrangement. But if your Mum didn't contribute to the mortgage, upkeep etc during this period, and it was agreed (formally recorded would help) that if Grandad and Granny sold the property, their Daughter would not receive any share of any free equity realised on disposal that would go somewhat to help illustrate the point ... however this aspect will be the difficult bit to convince HMRC on (given she also had the benefit of living there), and one where the chain is the weakest IMHO, unless as I say there is robust evidence that can be presented.

The 35k improvement costs (which isn't simple updating decoration), would need to be proven by receipts, and only claimable within the period Mum cites as BO - and if they were not provided by the workmen (ie to mitigate their own tax and vat !), then you're unlikely to obtain a copy for obvious reasons.

If the workmen did give receipts and charged VAT, then you could go back to them if they are still operating, and see if they have anything in their records to substantiate some or all of your 35k expenses claim. Otherwise, IMHO re HMRC you'll have to absorb these costs I'm afraid.

Why don't we look at what the top line tax will be if we play it straight and without playing the BO card, just basing cgt re value of Mums purchased share from inception, then the value of Grandads share on his death (which would be automatically split between her and your granny if this is a joint tenancy), and then the value of Grannys share at the time it passed to Mum on Granny's passing.

The reason why Mum has to pay CGT is because this property was not her primary residence for her whole period of ownership, and this applies to everyone in the same position - whether she feels its justified is academic, none of us like to pay tax, but where its due it has to be paid - but what we can do is try and minimise it as much as possible - which is why we're asking the questions and debating as we are.

I also agree that Mum needs to sit down with a tax practitioner, taking all figs and info with her, they will be completely up to date on currrent HMRC stances regarding such arrangements, and they will have public indemnity incase advice given is wrong, and Mum falls foul of HMRC having acted upon it ... whilst forum advice is free and largely unsubstantiated (ie you can't check our creditentials, our experience, what we do for a living and cant sue us if we give you a bum steer !).

Hope this helps

Holly x

uknick

There's been a lot of technical stuff posted re BO and PPR etc.

But, does it not all come to down to this; she inherited a house for £75k in 2008 and now wants to sell it now for £85k.

In which case the gain is lower than the annual exemption. Or, am I missing something?

Laurajo_2

No because she purchased potentially a 1/3 share when the house was bought and potentially inherited 1/3 or 1/6 of the house when her father passed - based on what has been posted. She then inherited the 50 percent in 2008.

I would be interest to see what hmrc have to say - I believe OP has contacted them?

holly_hobby

The problem is strictly speaking you can't inherit and base tax liability on something you already own (of which OPs Mum legally did in the form of 1/3 from outset) - which is precisely why we are discussing beneficial ownership regs and if the OP and their tax adviser (whom they should employ) can prove and apply them to this arrangement.

Holly x

John_Pierpoint

Does the house now stand out, saying "look at me", on street view or are the improvements tastefully hidden round the back? Non matching bricks and roof tiles ?

If the VOA is asked to take a look, I would expect them to have an initial look on-line.
That was what the VOA did with my relative's house. I was able to back up owning the second worse house in the street with some tasteful photos of rain coming in through the roof etc,

Laurajo_2

I feel quite sorry for ops mum here - it doesn't look like there is going to be much, or possibly any tax involved, but I suspect it might take a bit of work to unravel...

uknick

uknick wrote: »

There's been a lot of technical stuff posted re BO and PPR etc.

But, does it not all come to down to this; she inherited a house for £75k in 2008 and now wants to sell it now for £85k.

In which case the gain is lower than the annual exemption. Or, am I missing something?

I was looking at this too simplistically as I'd forgotten CGT indexation was a thing of the distant past.

The more I read the thread I'm starting to think it would make a good tax exam question.