Capital gains

lew3vans

Evening all. I am after a bit of advice.

My mum was on the deeds to her parents house along with both her father and mother since around 1982.

She has been on them ever since and both parents have recently passed away, leaving her as sole owner of the property. This means she has been on the deeds to a second home for quite some time.

The mortgage on the property has been paid off for a long time now, she was never on the mortgage, only the deeds and I was wondering if she would have to pay capital gains on the second property when she comes to sell it.

Seeing as it was bother the primary residence of both her father and mother until recently, does this mean she will not have to pay CGT as long as she sells the property within the first 18months if it not having a permanent resident?

Thanks in advanced
Lewis:):):)

Bluebirdman_of_Alcathays

She owns the house. She would therefore have to pay CGT.

She would get PPR for the final 18 months ownership. For the period from 1982 until 18 months ago, she is liable to CGT.

silvercar

Did she live in it as her main residence at any time since becoming a part owner? If so, that would reduce her liability.

She has been on them ever since and both parents have recently passed away, leaving her as sole owner of the property

This would depend on whether it was held jointly or each owning their own share.

she was never on the mortgage, only the deeds

Lenders don't usually allow this, so do check this is what happened.

booksurr

lew3vans wrote: »

she was never on the mortgage, only the deeds and I was wondering if she would have to pay capital gains on the second property when she comes to sell it.

there is a slight VERY technical chance that she could argue she never had the beneficial ownership and so has no CGT liability until very much later

CGT is based on beneficial ownership, not legal ownership. Therefore, as she made no contribution to the property, nor received a benefit from it until inheritance, she could argue she has no beneficial ownership until date of inheritance

this would however be a very technical issue (and somewhat clutching at straws) and would require proper paid for professional representation.
The alternative is she faces a CGT liability based on the increase in value sine 31 March 1982 (or, if later, the actual date of transfer in 1982) until the date of each death on each share she has inherited (tenants in common ) or on the whole inheritance on the last death (joint tenants)

lew3vans

silvercar wrote: »

Did she live in it as her main residence at any time since becoming a part owner? If so, that would reduce her liability.

She did but only for a couple of years at the beginning when she was about 23. She's now 54 so hasn't lived there for a long time.

This would depend on whether it was held jointly or each owning their own share.



Lenders don't usually allow this, so do check this is what happened.

really? Ok I'll have to get her to dig out every last bit of info.

lew3vans

booksurr wrote: »

there is a slight VERY technical chance that she could argue she never had the beneficial ownership and so has no CGT liability until very much later

CGT is based on beneficial ownership, not legal ownership. Therefore, as she made no contribution to the property, nor received a benefit from it until inheritance, she could argue she has no beneficial ownership until date of inheritance

this would however be a very technical issue (and somewhat clutching at straws) and would require proper paid for professional representation.
The alternative is she faces a CGT liability based on the increase in value sine 31 March 1982 (or, if later, the actual date of transfer in 1982) until the date of each death on each share she has inherited (tenants in common ) or on the whole inheritance on the last death (joint tenants)

I did neglect to mention in my original post that there was no written will from the last parent, and as such they are going about proceedings that way.

So it might be worth her getting in touch with a legal representative as well as a decent accountant then to ensure she hates her facts straight.

I'm hoping against hope that she doesn't have to pay, as it will be a ridiculous CGT bill seeing as the property was bought for something like £35k and is now worth £310k and other siblings would benefit from the sale also. I'm sure they're all scetrly glaring at her for costing everybody money.

What do you think would be the best move from here?

Thanks again
Lewis

silvercar

I'm hoping against hope that she doesn't have to pay, as it will be a ridiculous CGT bill seeing as the property was bought for something like £35k and is now worth £310k and other siblings would benefit from the sale also. I'm sure they're all scetrly glaring at her for costing everybody money.

Firstly, she is not costing everyone money - CGT liability would be hers alone.

Secondly, why are other siblings benefiting from the sale if she is the one that is inheriting?

My mum was on the deeds to her parents house along with both her father and mother since around 1982.

She has been on them ever since and both parents have recently passed away, leaving her as sole owner of the property.

If she is sole owner, I don't see any siblings having any claim.

silvercar

Lets play with some numbers, I've made some assumptions, but you can change them, at least it gives you an idea.

Property owned 3 ways from 1982 (value £35k), sold in 2015 (value 310k). total gain is 275k. lets take off 5k for selling costs and legals = 270k

She owns one third from 1982 to 2015 = 33 yrs of which she lived in it for 2 yrs + last 18 mnths exemption. So one third of 270k is 90k or which 3.5/33 is exempt, reducing that gain to 80.4k.

Say first parent died in 2010, she would have acquired half of that third (so one sixth) of the property value. Say it was worth £250k in 2010. 310-250=60. one sixth is 10k.

Last parent dies and their share (1/2 the property) passes across, but chances are there is little gain between the date of death and the date of sale.

So the total gain is 80.4+10=90.4k

less 11.1k CGT allowance, if not used elsewhere = 80.3k.

CGT is charged at 2 rates 18% and 28%. Most of that gain will mean that you hit the higher rate for a lot of it. The first £31,785 of any income in the year would attract a rate of 18%. You’ll pay 28% on any amount above this. So the max tax would be £22.5k, but would be lower for a lower earner.

I am not an accountant, so please check these figures - happy for anyone else to plow in with corrections.

lew3vans

silvercar wrote: »

Firstly, she is not costing everyone money - CGT liability would be hers alone.

Secondly, why are other siblings benefiting from the sale if she is the one that is inheriting?



If she is sole owner, I don't see any siblings having any claim.

Well she's not going to sell part of an estate and keep the money when she has brothers and sisters to share the inheritance with. I don't know what kind of person would do that.

Therefore the sale of the house would be split evenly between them all and the burden of the CGT would be taken from the sale price and each would have less of a share.

Thanks
Lewis

silvercar

Well she's not going to sell part of an estate and keep the money when she has brothers and sisters to share the inheritance with. I don't know what kind of person would do that.

It may be that siblings inherited something else and she received the property - how was anyone reading to know?

Anyway...

You can vary wills within 2 years of death, so you may have time to do some tax planning. Particularly if the first parent passing away was not that long ago..

booksurr

silvercar wrote: »

Lets play with some numbers, I've made some assumptions, but you can change them, at least it gives you an idea.

Property owned 3 ways from 1982 (value £35k), sold in 2015 (value 310k). total gain is 275k. lets take off 5k for selling costs and legals = 270k

She owns one third from 1982 to 2015 = 33 yrs of which she lived in it for 2 yrs + last 18 mnths exemption. So one third of 270k is 90k or which 3.5/33 is exempt, reducing that gain to 80.4k.

Say first parent died in 2010, she would have acquired half of that third (so one sixth) of the property value. Say it was worth £250k in 2010. 310-250=60. one sixth is 10k

Last parent dies and their share (1/2 the property) passes across, but chances are there is little gain between the date of death and the date of sale.

So the total gain is 80.4+10=90.4k

less 11.1k CGT allowance, if not used elsewhere = 80.3k.

CGT is charged at 2 rates 18% and 28%. Most of that gain will mean that you hit the higher rate for a lot of it. The first £31,785 of any income in the year would attract a rate of 18%. You’ll pay 28% on any amount above this. So the max tax would be £22.5k, but would be lower for a lower earner.

I am not an accountant, so please check these figures - happy for anyone else to plow in with corrections.

as an illustration it is spot on subject to a small quibble ...

the crucial bit is was the ownership tenants in common or joint tenants.
if the former what happened to first parents' to die share - given under a will, or given under rules of intestacy?

we now know that the second death is under intestacy rules so the remaining share of the property is not inherited by her alone. It will be split equally across all the siblings and her, therefore as you say any gain on the final inherited share would be on a smaller fraction than 1/3rd, as her share will not be all the remaining fraction