Capital Gains Tax on family home?

mischiefbec

Hi There,

I was wondering if anyone could give us a bit of advise on a family situation?

My Grandfather passed away in the summer leaving the family home to my father and his brother. We wanted to keep the home in the family so my husband and myself have decided to buy it.

My father very kindly didn't want his share so immediately gave it to me and my brother to share (giving me a 25% share of the property).

The house needs a lot of work and we discussed that £100,000 would be around the market value so the price to us, as family would be £90,000.

This would mean us buying it from them at a 10% discount, or a loss to them as I understand it.

The worry is that my Dad and Uncle would be liable for Capital Gains Tax? But as I understand it they would actually be in a loss situation?

Currently neither my father or Uncle owns their own home. My uncle is in full time employment and my Dad is retired.

If someone could advise further I would really appreciate it, as I know anything with HMRC is a bit of a minefield.

Thanks so much in advance,

Rebecca.

CLAPTON

when your grandfather died was probate obtained on the property?
was any inheritance tax payable on his estate?


capital gains tax isn't payable on death: if there is now any cgt liability it would be on the increase price since probate .. unlikely I would think

mischiefbec

Hi there,

Probate was obtained yes and there was no inheritance tax to pay.

Thanks for any advice in advance.

Rebecca.

xylophone

http://www.hmrc.gov.uk/cgt/property/basics.htm

You mention that your father is retired and does not own his own home.
Is he likely to need residential care at any point? Might be as well to be aware of the deprivation of assets aspect? http://www.ageuk.org.uk/home-and-care/care-homes/deprivation-of-assets-in-the-means-test-for-care-home-provision/

uknick

If you are refurbishing the house, and nobody is living in it at the time, have a look at the VAT rules on refurbishments.

You can claim a lot of it back, or pay at a significantly reduced rate.

As said, there won't be a CGT as it's sold at a loss. But, there may be an IHT implication if it is sold below market value and not as an arm's length deal. By this I mean not sold to a complete stranger. The IHT will not be an issue if the seller lives for more than 7 years after the sale, or their estate is below the threshold.

CLAPTON

any capital gains tax would only arise if the price of the property had increased significantly since the time of the grandfather's death

there is anyway a cgt allowance of 10,900 before any tax would be due.

your father and uncle can give the property away, can sell below valuation as they wish
however if you need a mortgage you must take account of the lenders rules and regs.

grey_gym_sock

since you father sold his share of the property for less than the market value, for CGT purposes the disposal value used is the market value. and the cost for CGT purposes is its value when he inherited it.

as clapton says, the first £10,900 gain is exempt (unless your father already used that allowance for something else), so there's no CGT unless his half share of the property rose in value by more than £10,900 between when your grandfather passed away and your father handed on his share of the property.

your uncle, and you, and your brother do not owe any CGT yet, but might do when you eventually dispose of your shares in the property. your uncle's base cost for CGT is half the house's value when he inherited. your and your brother's base costs are a quarter of the house's value when you were given those shares.

any CGT depends on your gain on the property, i.e. how much more than your base costs you sell it for.

each of you has a CGT allowance, currently £10,900, which will reduce the taxable gain.

any money spent on improving the property (but not on just maintaining it) can also reduce the taxable gain. do keep receipts for any work done!

costs of selling (estate agents' fees, etc) can also be deducted.