Selling Parent's House

Indirestraits

Can anyone advise please? About 18 years ago my parents signed their house over to my brother and myself. They continued to live there. My mother died 12 years ago and my father has just died. My brother and I will now sell the house but will we pay tax on the proceeds?

G_M

You have owned the property for 12 years.
The property has never been your primary residence.
You will have to pay Capital Gains Tax.

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

TrickyDicky101

I'm not so sure G_M is correct - the signing over was a gift with reservation as your parents continued to live there so for IHT purposes the property would still fall within your father's estate.

Depending on the total size of your father's estate (and whether any of the nil rate band from your mother's passing can be used if it wasn't at the time) you may therefore have an IHT liability (although unless otherwise stated within the will this would fall on the residuary legatee).

It then becomes an interesting question of whether the property's cost when you come to sell is its probate value (by virtue of being a gift with reservation) or its value at time of transfer 18 year ago which could have a significant impact on any CGT liability.

I am not familiar with how the law addresses the above point.

Jeffrey_Shaw

G_M wrote: »

The property has never been your primary residence.

It might have been; we do not know.

00ec25

TrickyDicky101 wrote: »

It then becomes an interesting question of whether the property's cost when you come to sell is its probate value (by virtue of being a gift with reservation) or its value at time of transfer 18 year ago which could have a significant impact on any CGT liability.

IHT
you have correctly summarised the potential IHT liability as being based on the probate value, however you are incorrect iro CGT
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm#6

CGT
18 years ago the OP became the legal owner via a connected persons transaction (ie a gift between relations)
http://www.hmrc.gov.uk/manuals/cgmanual/CG14580.htm

in the absence of further info we will assume no money (or other consideration) passed between parent and child therefore the child (OP) acquired the property at its full open market value on the date of the transfer 18 years ago. the transfer being classed as a "disposal" in terms of CGT law.
http://www.hmrc.gov.uk/manuals/cgmanual/cg14530.htm

As it was at that time the parents main home they were obviously exempt from CGT themselves on their disposal of their interest in the property

the OP is therefore liable for CGT if there has been a gain between the market value 18 years ago and the price they get when they now sell it

this may result in the OP facing a CGT bill and the estate an IHT bill which is why this form of tax avoidance is often called the "double whammy".

the GWR does not remove it from IHT and means the increases in value whilst it was a GWR result in it entering the IHT calculation valued at the date of death, whereas the same property is also valued on its gain from date of disposal by the parents to date of sale by the children. It is the most basic mistake you can make when doing DIY inheritance planning

Jeffrey_Shaw wrote: »

It might have been; we do not know.

good observation, if OP has lived in the property themselves since becoming its owner they they will be entitled to private residence relief for that period of occupation and this will mitigate the CGT exposure

Indirestraits

Oh dear - looks like my brother and I will have a hefty sum to pay then when we sell. Not good! Does anyone have any idea roughly how much we are talking about? (Just so I can prepare myself!!!). I was hoping to pay off my debts if I'm left with enough!

cte1111

If you're just talking about the CGT, then it will be:

Total capital gain = Market value when sold - market value at time of gift

Your CGT will be:
(Your share of the gain (sounds like this will be half the total CG) - your capital gains allowance of £10,900)
* 18 % or 28% depending on how much other income you have

cte1111

So let's say the house was worth £50,000 18 years ago, you sell it for £220,000 with selling costs of £2,000.

The total capital gain is 220 - 50 - 2 = 168k

Your share of the capital gain is half, e.g. £84k.

Your capital gain after allowance is 84000 - 10900 = 73,100

Say you've got £5,000 left of your basic rate, after earnings. Your total CGT will be:
(18% * 5,000) + (28% * 68,100) = £19,968

TrickyDicky101

00ec25 wrote: »

this may result in the OP facing a CGT bill and the estate an IHT bill which is why this form of tax avoidance is often called the "double whammy".

....It is the most basic mistake you can make when doing DIY inheritance planning

Double whammy indeed!

xylophone

Oh dear - looks like my brother and I will have a hefty sum to pay then

when we sell.

This would be the CGT - have you addressed the IHT question as the gift of the property seems to have been "with reservation"? http://www.hmrc.gov.uk/inheritancetax/intro/transfer-threshold.htm may be relevant.