CGT on Inherited Property - Private Residence Relief Eligibility

YoungLions

Hi fellow MSEers!

Long time lurker, first time poster.. Just wondered if anyone had been through something similar or had knowledge regarding the below scenario:

Basically my dear old Mum inherited her Mum and Dad's house about 3 years ago, with a valuation of £235,000. She rents a 1BR property and didn't want to move into the inherited property so she rented it out for extra income.

3 years later my Mum wants to sell up and move to Liverpool to be closer to my Brother - will she be able to claim the full Private Residence Relief despite not actually living there? She obviously does not own any other property that she would have been able to claim this relief on.

The property is now valued around £265,000, but if she was required to pay CGT I'd understand this would be a huge chunk out of the money received.

The HMRC website is a little bit confusing but states:

The final 3 years (36 months) always qualify for relief. This applies even if you weren't living there during the final 3 years. It must have been your only or main home at some point during the time that you've owned it.

Has anyone got any idea how eligibility for Private Residence Relief applies in this situation?

Any advise would be greatly appreciated!

Regards,
Dan.

Mojisola

It doesn't sound as if she ever lived in the property after she inherited it so I don't see how that would apply at all.

Nutcase243

CGT will be payable - but on the difference between the sale price and the value at inheritance, not the whole price. She can also deduct her sale costs and the annual exempt amount (in the region of £11,000) so you're looking at CGT (at 18% if she's a basic rate taxpayer) on less than £20,000, not the whole £265,000.

zygurat789

YoungLions wrote: »

Hi fellow MSEers!

Long time lurker, first time poster.. Just wondered if anyone had been through something similar or had knowledge regarding the below scenario:

Basically my dear old Mum inherited her Mum and Dad's house about 3 years ago, with a valuation of £235,000. She rents a 1BR property and didn't want to move into the inherited property so she rented it out for extra income.

3 years later my Mum wants to sell up and move to Liverpool to be closer to my Brother - will she be able to claim the full Private Residence Relief despite not actually living there? She obviously does not own any other property that she would have been able to claim this relief on.

The property is now valued around £265,000, but if she was required to pay CGT I'd understand this would be a huge chunk out of the money received.

The HMRC website is a little bit confusing but states:


Has anyone got any idea how eligibility for Private Residence Relief applies in this situation?

Any advise would be greatly appreciated!

Regards,
Dan.

PRR is ONLY applicable to property you own AND live in.
Did your mum ever live in the property?
Did she declare rental income to HMRC?
CGT will be calculated:-
Sale PROCEEDS (say) £262,000
Cost £235,000
therefore gain £27,000 less annual exempt amount (of £11,000)
Taxable £16,000 @ 18% = £2,880.
Is this a huge chunk of £262,000? It's just over 1%

Your_Hero

PRR is unlikely to be available as it was never her main residence.


CGT is payable on her gains less expenses. As Nutcase243 points out, she does have a CGT allowance is £11,000 for 2014/15 which is taxed at 0%. The rest of the gain is then added to her income for the year and taxed at 18% if she is still a basic rate payer (after the gains added), and 28% on the excess that pushes her over to higher rate tax.

YoungLions

Thanks for your prompt input folks.

zygurat789 - She lived in the property for around a month to renovate before letting out to tenants, but probably wouldn't want to force the point with this as it could be perceived as tax avoidance. She has declared all rental income to HMRC luckily.

My lack of understanding with CGT made me think the situation was a lot worse than it is in that case. I used a CGT calculator and put the cost as £0 as it was inherited and ended up with a £70,000 CGT bill and panicked.

With regards to her tax band - She earns a total of £18,000 per year including the rental income from the property so I believe she might still just about be in the lower band.

Paying a few thousand to the taxman might not be the worst thing in the world, but the thought of handing over almost £70k from the family home made me feel a bit ill.

Thanks again everyone for your replies - you're a great community.