Gifted house CGT and other questions

Need_educating

My wife and her sister were gifted a house by there father just under 7 years ago. He continued to live in the house until He died recently. He did not pay rent to either sister on the house. We are trying to decide what to do with the house. It's value is £160k and has a potential rental income of around £550/month. The sister has spoken of her desire to purchase my wife's half and use it as a rental income for herself. If we do sell how do I work out the CGT on our half of the property?

booksurr

Father

IHT
as he continued to live there then it was a gift with reservation and so should have been included in his estate value for IHT purposes. Furthermore, he did not pay full market rent therefore it remains exposed to IHT
whether any IHT is relevant depends on the value of his estate ... by whom - professional valuer? Nonetheless, with a property value of £160k it looks "unlikely" that father's estate was liable to IHT

CGT
it was both before and after his main home so father was exempt from CGT at time time of his giving

Wife

IHT
irrelevant, she ain't dead and it was a GWR by father therefore the "7 year rule" does not apply to father

CGT
her "acquisition" cost at the time father gave it to her was the open market value of the property ("connected person rule") x 50% since she got half and sister got half. The valuation must be at date of gift, the 7 year rule is utterly irrelevant in respect of CGT

if sister now wants to purchase that half from wife then the same principle applies. Wife's sales price for the purpose of CGT will be based on 50% of its current market value NOT however much sister physically pays to wife since since wife and sister are "connected persons"

rental income
somewhat irrelevant. If wife does not "sell" (see above) to sister then the split of the £550pcm between wife and sister is down to them to agree, it does not have to be 50/50, it can be whatever % they want

Need_educating wrote: »

If we do sell how do I work out the CGT on our half of the property?

there is no OUR!!!
your wife appears to be 50% owner with sister having the other 50%. You are not involved or exposed to tax at all

tax planning - if wife decides to give a part of her 50% to you then for CGT purposes a transfer between wife and you is exempt from CGT so the position could end up (for example) with sister owns 50%, wife owns 25% & you own 25%, meaning that you and wife can each claim the personal allowance (£11,000) against your respective CGT liabilities. Note however that posts from other accountants on these boards indicate that if wife transfers a share to you immediately before sale HMRC will challenge this as deliberate tax avoidance and will ignore such transfer - then again other accountants say they won't, your gamble!

Need_educating

Thanks for the time spent to reply, much appreciated