CGT liability

djt1

Hi All,

I am after some advice concerning whether and elderly relative an myself would be liable for CGT. I would guess the circumstances are a little more complicated than most, but will do my best to keep it as simple and brief as possible.

Elderly relative and myself inherited a property following the passing of another relative in April 2013 through rules of intestacy. The property was eventually transferred into our joint names (not sure if TIC or JT without checking) in July 2014.

Elderly relative moved into the inherited property shortly after April 2013 and sold their own property, but declining mental and physical health meant I had to relocate them to be closer to me into a retirement property in April of this year.

They completed on the retirement property in March of this year, moved in April and we subsequently placed the inherited property on the market a week later. Fortunately, relative had the finances in place to complete on retirement property without needing income from the sale of our inherited property as it wasn't possible to market in the condition since they suffered from alcohol abuse and associated effects (it took me a whole week to clear the house).

Thus, based on the above would elderly relative be liable for CGT based on the difference between valuation for probate and eventual sale?

At the time of inheriting the property, I myself was renting and purchased my own home in February of this year.

Would I be liable for CGT on the difference between probate valuation and sale price?

In the event we are liable for CGT, I understand there is an allowance of £11K for a given tax year. Would this be £11K/each, or split between us since the property is owned jointly equating to £5.5K? I also understand that certain expenses can be offset against CGT liability. Does this include EA & solicitors fee's?

The information I have managed to dig up, implies there are also certain exceptions to CGT, such as when you can't sell your own place before purchasing another. In the case of elderly relative, they were unable to sell and purchase in chain due to condition of the property and inability to vacate the premises (for purposes of viewings due to disability) or even show people round. Similarly, I myself was unable to sell the property until relative had relocated themselves. Would this constitute exceptional circumstances?

I appreciate people may not be able to give definitive answers, but if you can point me in the right direction, I would be grateful. I have discussed with my solicitor (who are very good) but wouldn't give me anything firm, other than to say I need to speak to a financial advisor. Whilst I'm prepared to do (and pay) for this, I would like to approach them with as much knowledge as possible.

Thanks in advance and apologies for length of post.

djt1

booksurr

the total gross gain is the difference between probate value (April 13) and what it sells for. July 14 transfer is irrelevant. From that you can deduct buying and selling costs: EA fees, legal fees, SDLT.
the period of ownership = April 13 > sale date in summer? 2015 = approx 2.5 years?

elderly relative
her liable gross gain = total figure above x her share of the property (JT 50/50? TIC share?)
it became their main home shortly after Apr 13 until April 15. On that basis elderley relative has zero CGT liability as the entire time they have owned it is covered by Private Residence Relief because a) it was their home for 2 years 13 - 15 and b) based on that the final 18 months of ownership are exempt. Therefore, in round terms, PRR qualifying period is all bar the initial one or two months of her ownership total

PRR = gross gain x % of time qualifying as main home
Personal allowance = 11,100 (15/16 rate) per person in year of sale only
taxable gain = gross gain - PRR - PA.

therefore the tiny initial period between date of death and date moved in around April 2013 would be covered by her £11,100 CGT personal allowance leaving zero taxable liablity

You
your liable gross gain = total figure above x your share of the property (JT 50/50? TIC share?)

You had a "legal interest" in another property (the one you rented) and that was, in CGT terms, your main home even though you did not own it. You now own a home which is your current main home

therefore given you have never lived in it you have no PRR claim. Consequently you also have no claim to the 12 month selling period since the property being sold was not previously the home you had vacated in order to buy a new property.

depending on the values concerned it is probable that you will indeed have a CGT liability:
your share of gross gain - PA 11,100 if >0 means you will have to pay tax at 18% and/or 28% (rate used depends on your total income that tax year) on the net taxable gain

djt1

Hi booksurr,

Thanks for your reply. Gives me something to start with. To make things a little more complicated, I am also an attorney for said elderly relative. Would this come under a dependant relative?

In my position, what would your next plan be? I don't even know how to go about paying CGT. Is it the same as SDLT and must be paid within 30 days, or would it be a case of self assessment at the end of the tax year?

I could contact HMRC, but how likely am I to get informal advice? Or is now the time to instruct a financial advisor? Difference between valuation and sale is £35k. A rough calculation (taking into account, my 50% share, EA & solicitor fee's and annual allowance) would make me liable for ~ £1k. Almost begs the question, is it worth speaking to a FA, given their fee's!

djt1

cte1111

Given that your relative had sufficient cash to buy the retirement property outright, without having to sell the inherited property, I think this would discount them being considered a dependent relative, in financial terms.

CGT would be included in your tax return, if you don't already do one, then you need to let them know about the sale, before 5th October in the tax year following the sale. The deadline to actually pay the CGT will be 31st January in the following year, e.g. if you sell in late 2015, you will need to let HMRC know by 5th October 2016, then pay by the end of 31st January 2017.

https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

Keep_pedalling

Probably not worth consulting a FA for such a small amount. Have you any potential losses you can off set against this gain? E.g did you sell a bunch of bank shares for much less than you paid for them, or are you still sitting on similar shares that you could now sell?

booksurr

dependent relative is utterly irrelevant in your case as in the context of CGT you are 25 years too late since it referred to a property purchased before April 1988 http://www.hmrc.gov.uk/manuals/cgmanual/CG65550.htm

you report CGT liability as part oif your annual SA tax return. If you are not already required to do one, but know you have a liable gain, then you must register for SA and will pay the CGT to the same timescale as all other SA tax , ie by 31st Jan following the end of the tax year it relates to at the very latest

you seem very good at finding obscure and out of date info, have you read the more relevant current stuff?

intro to the basics: https://www.gov.uk/topic/personal-tax/capital-gains-tax

PRR: https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet

booksurr

djt1 wrote: »

In my position, what would your next plan be? I

1. make sure you have robust probate valuations. Was any IHT actually paid by the estate of the deceased? If not the probate valuation has not yet been "ascertained" and therefore HMRC will try to lower it (by reference to the VOA) so that your gross gain increases. To counter that you will need (professional) valuation evidence to support your figure if you did not get such as part of the probate process. http://www.hmrc.gov.uk/manuals/ihtmanual/ihtm09243.htm

2. consider submitting a CG 34 form to get an indication from HMRC whether they agree with your value or not. Bear in mind they process these slowly so allow the required time! https://www.gov.uk/government/publications/sav-post-transaction-valuation-checks-for-capital-gains-cg34

3. register for SA

4. collate all your income tax records so that you can complete that part of the SA return without too much hassle

5. fill out the CGT pages of the SA return and submit it, pay the tax due.

Bear in mind is it worth the cost and effort of trying to reduce the net liability. You say it could be as little as £1,000, meaning the max CGT you'd pay is £280. If you have existing losses of £1,000 then fine, now would be the time to utilise them but for such a small sum it would cost more in professional fees than it would to simply pay the tax if you try anything more fancy than that

djt1

Thanks to all for your replies.

Given plenty to start with. Fortunately, the property was valued for probate professionally by an EA. Said valuation is reflected in the land registry titles. Even though the estate didn't pay I tax, HMRC can't have it both ways, inflating the valuation for probate to bring you into the IT threshold and lowering the valuation when it comes to calculating the CGT liability.

I'm glad I came to the forum, the solicitor who dealt with the estate seemed to think, although not in writing that I wouldn't have to pay CGT. Last thing I want is to get stuck with a tax bill and fines in several years time. Reading the HMRC website, it does appear as if they rely on you to be honest and report any gains.

Fortunately, I have time on my side to get everything sorted! I hope that's the only SA I have to do and hope it doesn't trigger having to do them for several years to come.

Booksurr, CG 34 - top tip. Will do that immediately. £1k liability was a calculation of tax due, taking into account, allowance, EA and solicitor fee's etc, rather than the gains. Unfortunately, I don't have other assets that I could offset those gains.