Capital Gains Tax

jimmo

holly_hobby wrote: »

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

No, no. Sorry if its not clear but I tried to present 2 separate alternative approaches.

Under “my approach” beneficial ownership is claimed to have commenced in 2008 when nanna died. Then the cg calculation is relatively straightforward.

Cost /acquisition = value in 2008.

No PRR, no dependent relative relief.

Under “Laurajo’s approach” there are 3 acquisitions;

1) the original purchase (“38 or 40 years ago“) somewhere between 1973 and 1975. Therefore a valuation at 31/3/82 is required and will almost certainly replace the original purchase.

2) 1992

3) 2008

It is only under “Laurajo’s approach” that PRR and dependent relative relief come into the reckoning.

aronmatt3

Whippy1980 wrote: »

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?

In this when no one is able to give you exact solution, then it is always a better option to talk directly with the authorities like hmrc in your case. I do not think that in any case they will demand for more, you need to explain them everything and ask for their honest suggestion that will help in your situation.

John_Pierpoint

You would be very brave to do that.
In Britain our law is all built on the sporting adversarial system - May the best man win..
[Yes every tax has an underlying law, what ever some under trained employees of HMRC might think]
http://en.wikipedia.org/wiki/Adversarial_system

So think of this, as a contest such as a boxing match, don't expect your opponent to suggest ways of landing a killer blow.
Nor should you expect some telephone answering level of employee to be able to (say) explain football's off side rule.

However any sort of quasi legal dispute is going to cost money, so the OP should do the maths, decide on the strategy and decide which "gamble" is likely to work and the risks and cost costs if it fails.

The danger is that your opponent potentially has a limitless purse, but overall time and budget restraints.

So both sides might let something trivial pass as not being worth fighting over.
However HMRC needs to be careful about letting through something without checking it out, just in case it established a new "loophole".

[Once upon a time, I found myself receiving a payment that was only partly taxed.
This could be logical if the payment in part represented return of capital, but in this case it all looked like unearned income to me.
So I thought I ought to clarify the matter and wrote asking for an explanation. This was in the days when HMRC answered letters, while one could still remember what it was all about.
I got back a meaningless letter.
Wrote again.
Got back a personalise, but still not answering my questions, letter.
Wrote again.
Got back a two page letter from Somerset House quoting the legalities.
This sort of thing.
If referring to specific sections or parts of an Act, after the name and year, insert a comma then the relevant abbreviation and number. Some abbreviations are pt for part; s for section; sub-s for subsection, para for paragraphs; sch for schedule. For example, Consumer Protection Act 1987, s 2 refers to section 2 of that Act. It is also suitable to write, for example, section 11 of the Limitation Act 1980. When referring to subsections, use parentheses. For example Human Rights Act 1998, s 15(1)(b) refers to subsection 1b of section 15.

They were right and I was in the wrong.
Though the situation still did not make any sense to me and coincidently has now been changed to make all the income "untaxed" at source.
If this represents partial double taxation because of the loss of some sort of "franking" relief, I have no idea. (That was in the days when I believed in "Intelligent Design", when it came to the evolution of our tax system).

These days it would probably works like parking tax; you have the legal right to dispute the situation, but if you do a penalty will be imposed and you will spend a lot of time and money challenging the situation - Oh s0d it, just pay the tax.]

uknick

John_Pierpoint wrote: »

You would be very brave to do that.
In Britain our law is all built on the sporting adversarial system - May the best man win..
[Yes every tax has an underlying law, what ever some under trained employees of HMRC might think]
http://en.wikipedia.org/wiki/Adversarial_system

So think of this, as a contest such as a boxing match, don't expect your opponent to suggest ways of landing a killer blow.
Nor should you expect some telephone answering level of employee to be able to (say) explain football's off side rule.

However any sort of quasi legal dispute is going to cost money, so the OP should do the maths, decide on the strategy and decide which "gamble" is likely to work and the risks and cost costs if it fails.

The danger is that your opponent potentially has a limitless purse, but overall time and budget restraints.

So both sides might let something trivial pass as not being worth fighting over.
However HMRC needs to be careful about letting through something without checking it out, just in case it established a new "loophole".

[Once upon a time, I found myself receiving a payment that was only partly taxed.
This could be logical if the payment in part represented return of capital, but in this case it all looked like unearned income to me.
So I thought I ought to clarify the matter and wrote asking for an explanation. This was in the days when HMRC answered letters, while one could still remember what it was all about.
I got back a meaningless letter.
Wrote again.
Got back a personalise, but still not answering my questions, letter.
Wrote again.
Got back a two page letter from Somerset House quoting the legalities.
This sort of thing.
If referring to specific sections or parts of an Act, after the name and year, insert a comma then the relevant abbreviation and number. Some abbreviations are pt for part; s for section; sub-s for subsection, para for paragraphs; sch for schedule. For example, Consumer Protection Act 1987, s 2 refers to section 2 of that Act. It is also suitable to write, for example, section 11 of the Limitation Act 1980. When referring to subsections, use parentheses. For example Human Rights Act 1998, s 15(1)(b) refers to subsection 1b of section 15.

They were right and I was in the wrong.
Though the situation still did not make any sense to me and coincidently has now been changed to make all the income "untaxed" at source.
If this represents partial double taxation because of the loss of some sort of "franking" relief, I have no idea. (That was in the days when I believed in "Intelligent Design", when it came to the evolution of our tax system).

These days it would probably works like parking tax; you have the legal right to dispute the situation, but if you do a penalty will be imposed and you will spend a lot of time and money challenging the situation - Oh s0d it, just pay the tax.]

Whilst I don't in any way excuse HMRC for your bad experience, I've contacted them on many occasions for CGT, IHT and VAT advice and have never had any problems.

I will admit though, I rarely give them details so they know who I am.

holly_hobby

jimmo wrote: »

No, no. Sorry if its not clear but I tried to present 2 separate alternative approaches.

Under “my approach” beneficial ownership is claimed to have commenced in 2008 when nanna died. Then the cg calculation is relatively straightforward.

Cost /acquisition = value in 2008.

No PRR, no dependent relative relief.

Under “Laurajo’s approach” there are 3 acquisitions;

1) the original purchase (“38 or 40 years ago“) somewhere between 1973 and 1975. Therefore a valuation at 31/3/82 is required and will almost certainly replace the original purchase.

2) 1992

3) 2008

It is only under “Laurajo’s approach” that PRR and dependent relative relief come into the reckoning.

Thanks for coming back on this one Jimmo x

I see what you're saying, ..... I read it that although we agreed on BO from Granny's passing, you were also looking to apply PRR from her initial residency period to the calc ( which as we know predated the actual BO term).

This is what led me to think that ...

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.

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.

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

This somewhat confused the issue, but I see that you now agree no PRR is available.

Thats great, we're agreed that if we're going down the Beneficial Ownership (BO) route, that this may only stand a chance if cited as commencing from Grannys passing (ie 2nd death of the fellow joint and habitating owners), and not Grandad's who pre-deceased Granny leaving her as sole occupier, and there is also no PRR exemption available. EG - that may be applied from any previous occupancy period (as the property has never acted as Daughters primary residence, including the period following Granny's death/cited BO period).

That now makes much more sense, and the route I would certainly go if nominating a deferred BO period in reporting CGT liability.

I do wonder though if HMRC will try and claim that daughers early residence period in the property (post pch with parents), essentially did provide her with BO (which of course would be subject to full PRR exemption - as without her being party to the mortgage, the property couldnt have been purchased and the trio (inc daughter) reside there.

Having said that, the defence that may be raised and may satisfy could be that the trio didn't need to pch the property to have (and give the daughter) the benefit of residence, as its a slightly unusual situ, in that it was purchased under a RTB arrangement, and already both pre and at the point of pch their existing family residence - but it'll certainly be a close one, and we still have the complication of proving however that if the property was sold at any point during the lifetime of her parents, the daughter would not have received or claimed any financial benefit from the sale, which if disproven or not accepted as typical, would kind of blow our BO claim out the water.

What a nice sticky juicy quandry .... can't wait to hear from the OP, which CGT route they elected to submit under, and how HMRC view the whole saga ..... hold on to your hats !!

Holly x x

Laurajo_2

I'm also really interested to see how this one pans out.

I've only really seen beneficial ownership used as a mitigation to claim that a partner was a beneficial owner to ensure two annual allowances, so am very interested to see how this will work in practice - I can see where the argument is, and definately think it's worth a shot, I just don't think hmrc will go for it unless there has been something specifically signed that, if the house was sold during the parents lifetime, his mother would not be entitled to any of the proceeds.

Don't go to hmrc - go to an accountant. Oddly enough, hmrc will favour the process which generates the most tax. Or they always have done in the past....which will be the method I detailed without the BO so you will have additional valuation fees to pay...

It's certainly an interesting one.

Laurajo_2

Presumably, she didn't pay towards the mortgage, or towards the upkeep?

I'm reading it as she literally just signed for the mortgage...

Laurajo_2

http://www.landlordzone.co.uk/landlordzone-update/property-ownership-why-it-matters

If you look under the children and mortgages, this seems to imply without a deed of trust giving beneficial ownership, they will find it difficult to apply it retrospectively.

With it being a reasonably common situation, albeit vice versa, I'm surprised there isn't more about it...

jimmo

I think one of the difficulties here is that beneficial ownership is a matter of general law, not tax law so HMRC is not an authority on the subject. There are limited circumstances when you can run things by HMRC but beneficial ownership is not covered.

http://www.hmrc.gov.uk/cap/nscg.htm



This, to me, is now a classic case of where Self Assessment does “exactly what it says on the tin”. Subject to the OP coming back and clarifying the figures I think we are agreed that calculating the capital gain on the basis that mum’s beneficial ownership commenced in 2008 is likely to be the more tax efficient and will also save quite a bit in professional valuation fees.

I say do it but recognise that you are putting the ball in HMRC’s court. They can challenge or accept.

Coming back to the beneficial ownership issue that now becomes a potential reason for an HMRC enquiry but the legal arguments about beneficial ownership are beyond the capabilities of an individual taxman. He will have to decide whether the potential tax at stake justifies the cost to HMRC in both time and money in asking a solicitor to deal with that.

All I can tell you here is that in the capital gains specialist team that I was a part of not one person would have taken up a beneficial ownership issue in a Right to Buy case where a child of the original council tenants had to be included as a legal owner for the sake of obtaining a mortgage.

By the way, I guess that you are too young to know, but the reason I keep typing beneficial ownership in full is that, to me, BO conjures up smelly armpits and Lifebuoy soap.


http://en.wikipedia.org/wiki/Lifebuoy_(soap)

Savvy_Sue

jimmo wrote: »

By the way, I guess that you are too young to know, but the reason I keep typing beneficial ownership in full is that, to me, BO conjures up smelly armpits and Lifebuoy soap.


http://en.wikipedia.org/wiki/Lifebuoy_(soap)

Not just you jimmo, I think I even wrote a post to the same effect but then my 'puter wouldn't cooperate and I lost it!

BTW have corrected your link (closing bracket not included in your version).