Selling House - Capital Gains Tax

lubylucy

Twenty-seven years ago our uncle, a bachelor, signed his house over to my two brothers and me on condition that he could live in it for the rest of his days. He died in September and we've been updating it with a view to renting out or selling. We've finally decided to sell as none of us are local enough to the property to deal with day-to-day running and my older brother doesn't want to use a letting agent because of a bad experience he had with one years ago.

With regard to CGT, I'm confused how it operates. I thought I could see what we could each gain before paying (£11,100.00) but then my brother found a calculation which also seems to take earnings for the year into account.

Once the house is sold and we each declare the gain, do we need to provide proof of what we spent on updating etc? It's not a problem if we do, but how do we let HMRC know that the outgoings are split three ways? Last year I earned £718 (I set up a new business right at the end of last year having been a stay-at-home-mum for the previous 9 years) so will that come off the £11,100.00 or is that a totally separate allowance for CGT calculations?

Is the amount we need to pay worked out by HMRC once we declare the gain, or do we have to work it out ourselves?

The more information I look at, the more confused I'm becoming.

Foxy-Stoat_3

Your solicitor will be able to guide you on the CGT impilcations and give figures.

benjus

In general, when you submit tax figures and calculations to HMRC you don't need to give your workings or evidence. You'll only need that if HMRC decides to investigate you.

Income is taxed under income tax and has a separate allowance to CGT.

If you can't figure out how to do the calculation, pay someone that knows what they are doing to do it for you.

ikorodu

How much is the house worth? As your uncle lived there rent free after gifting the house to you I would think that you'd need to pay inheritance tax on it if his estate was worth more than £325k. As he lived in the house rent free then I think it may still be counted as part of his estate. I'd see a tax specialist who will be able to advise or you could ask in the tax forum on here.

This is from the gov website:

"Passing on a home as a gift

If a person passed on their home to their children (or someone else) before they died, it’s treated as a gift and the 7-year rule applies.

But if they continued to live in it rent-free, their estate has to pay Inheritance Tax on the home even if they lived for 7 years after giving it away. This is known as a ‘gift with reservation of benefit’"

lubylucy

We'd already gone through the inheritance tax implications with the executors of our uncle's will. With the house included, the estate was still a long way under the threshold for inheritance tax.

anselld

If it is treated as gift with reservation then it will be taken back into the estate for IHT purposes.

[STRIKE]If this is the case then CGT will not be applicable up to the probate date.

CGT may still be applicable to any increase in value between probate and sale.[/STRIKE]

Edit: I stand corrected on this, apologies.

ikorodu

lubylucy wrote: »

We'd already gone through the inheritance tax implications with the executors of our uncle's will. With the house included, the estate was still a long way under the threshold for inheritance tax.

Ok.

I'm not a tax expert but I'd say your gain will be the difference in the value 27 years ago and what you sell it for. I think that you'd be able to take off the cost of selling it and any improvements you've made (but not general maintenance). What's left would be your gain. If your gain is above your allowance £11,100 then you'll need to pay. I used http://www.uktaxcalculators.co.uk/ to get the following:

Say you sell for 150k with fees of 3k (estate agent etc)
it was worth 30k when transferred to you
and you earn nothing this year.
I've split the proceeds and initial cost three ways (50k and 10k)

Capital Gains Tax Liability for 2015/2016 - (6th April 2015 to 5th April 2016)

You disposed of 1 asset in this Tax Year

Your brought forward £0.00 Losses from 2014/2015

Asset Name House
Disposal Date 23/04/2015
Disposal Proceeds£50,000.00
Purchase Price £10,000.00
Other Costs £1,000.00
Gain/Loss£39,000.00

Total Gain is £39,000.00

Gain after applying annual exempt amount of 11100 is 27900

Remaining annual exempt amount is 0

Gain after applying losses brought forward of 0 is 27900

Remaining losses to carry forward are 0

Basic Rate Band Remaining is 31785

Tax payable at 18% is 5022

Basic Rate Band Remaining now is 3885

Your Capital Gains Tax Bill before any reliefs have been applied would be £5,022.00

You have £0.00 losses to carry forward to the next tax year

Read more about the types of Capital Gains Tax Reliefs that are available for Property and Shares

By the way, if you disposed of these Assets in the previous tax year, 2014/2015 you would have a tax bill of £5,040.00. A difference of £18.00 more



BTW given that the property was gifted so long ago I'd guess that you'd have been better off being left the house in the will as then you'd not have paid either CGT or IHT. Still hindsight is a wonderful thing!

TrickyDicky101

anselld wrote: »

If it is treated as gift with reservation then it will be taken back into the estate for IHT purposes.

If this is the case then CGT will not be applicable up to the probate date.

CGT may still be applicable to any increase in value between probate and sale.

I do not believe this is the case - in this instance you get hit by the double whammy of potential IHT (as gift with reservation) and potential CGT on value uplift since date of transfer to date of death.

With the benefit of hindsight, this means the original transfer was probably a silly thing to have done (if only looking at tax consequences).

lubylucy

If the estate including the house is under the inheritance tax threshold though, doesn't that mean our only liability is capital gains tax?

Does anyone know how we find out what the house was worth on the date of transfer please?

booksurr

anselld wrote: »

If this is the case then CGT will not be applicable up to the probate date..

totally wrong

just because it was a gift with reservation does not remove the CGT liability applicable from date of gift, not date of subsequent death

it is the most common mistake made when doing DIY inheritance tax planning - it remains exposed to IHT plus has now made those who could have inherited it free of IHT if the estate's value was low enough actually liable for a CGT which they will certainly have to pay if above their personal allowance

booksurr

lubylucy wrote: »

If the estate including the house is under the inheritance tax threshold though, doesn't that mean our only liability is capital gains tax?

correct

lubylucy wrote: »

Does anyone know how we find out what the house was worth on the date of transfer please?

either - you employ a suitably qualified property valuer to work it out for you. The best solution is a chartered surveyor who is on the institutes "red book" list as an accredited valuer
http://www.rics.org/us/find-a-member/
or
http://www.ricsfirms.com

Or you attempt to DIY it by means of researching property sold prices of identical properties to your uncle's one using data from 27 years old such as newspaper cuttings and EA sold prices data . Good luck with that!