CGT on holiday home

Snowdrop1

My parents have owned a holiday home since 1981. As they are both in their 80's now they are considering whether to let it out as a holiday let or to sell the property. They bought the property for £20,000 and it has been valued at £200,000. They are low rate tax payers, and is jointly owned by both of them. Advise please on how I work this out. Many thanks.

booksurr

CGT starts at 31 March 1982 therefore the value of £20k may, or may not, be acceptable for use in the calculation as technically you must use the value at exactly that date for items that existed before then. HMRC will use that date and so it might be wise for you to also do so- you can ask HMRC to check the value you use on Form CG 34 .

For the sake of an example let us stick with 20k

the gain is 180,000, joint owned so 90,000 each. They can deduct the costs of legal fees and EA fees upon its purchase (if they have any paperwork to support them!) and its sale

it has never been their main home at any time during their ownership so the only relief they get is their personal allowance. Let us say the legal fees and EA fees are 5,000, so:

father: 90,000 - 11,100 -2,500 = 76,300 taxable gain
mother: 90,000 - 11,100 - 2,500 = 76,300 taxable gain

given the size of the gain each will be required to do a self assessment tax return to report their liability and pay the tax due

the amount payable depends on how much income they have. For example let us say father has taxable income (pensions and savings interest) of 20,000 per year. His CGT will be:
42,385 - 20,000 = 22,385 taxable at 18% = 4,029
76,300 - 22,385 = 53,915 taxable at 28% = 15,096

so in that example he would pay £19,125 CGT out of his 90,000 share and your mother would pay whatever the figures are based on her taxable income. Remember each is taxed individually, they cannot declare one combined gain

CLAPTON

booksurr wrote: »

CGT starts at 31 March 1982 therefore the value of £20k may, or may not, be acceptable for use in the calculation as technically you must use the value at exactly that date for items that existed before then. HMRC will use that date and so it might be wise for you to also do so- you can ask HMRC to check the value you use on Form CG 34 .

For the sake of an example let us stick with 20k

the gain is 180,000, joint owned so 90,000 each. They can deduct the costs of legal fees and EA fees upon its purchase (if they have any paperwork to support them!) and its sale

it has never been their main home at any time during their ownership so the only relief they get is their personal allowance. Let us say the legal fees and EA fees are 5,000, so:

father: 90,000 - 11,100 -2,500 = 76,300 taxable gain
mother: 90,000 - 11,100 - 2,500 = 76,300 taxable gain

given the size of the gain each will be required to do a self assessment tax return to report their liability and pay the tax due

the amount payable depends on how much income they have. For example let us say father has taxable income (pensions and savings interest) of 20,000 per year. His CGT will be:
42,385 - 20,000 = 22,385 taxable at 18% = 4,029
76,300 - 22,385 = 53,915 taxable at 18% = 15,096

so in that example he would pay £19,125 CGT out of his 90,000 share and your mother would pay whatever the figures are based on her taxable income. Remember each is taxed individually, they cannot declare one combined gain

you have a little typo: you have written 18% twice rather than 28% for the second time




regards

Snowdrop1

That's really helpful, thank you. My mum only has a state pension and No savings so guessing her tax bill would be less?

CLAPTON

do they need the money?


I ask because if you were the beneficiary of their will, then maybe (and maybe not) it might be better to let it out and then inherit in due course


but this critically depends upon their whole financial situation

Snowdrop1

They don't need the money at the moment, my mum has advanced Alzheimer's, and dad is her carer, the cottage 350 miles away, which has meant its been empty for a year. Yes I would inheriate solely. It's whether having it as a holiday let would add extra stress to my dad, as there are only the two of us and my mum, and we are not sure how much work would be involved particularly as it is so far away. But then again, it's a shame to pay all that tax.

Cook_County

Who has the LPA. The question here is what is in their best interest; not yours. It sounds as if it will be in their best interest to sell and realise cash to pay for care; or take a reverse mortgage and realise cash. But...if they have cash they might become self-funding for care. This needs specialist advice to ensure that the attorney acts in their best interest.

booksurr

Snowdrop1 wrote: »

That's really helpful, thank you. My mum only has a state pension and No savings so guessing her tax bill would be less?

your mother and your father will pay whatever tax arises from using their actual incomes to determine how much of the gain is below the 42,385 threshold and so taxed only at 18%. Given the side of the gain at least some of it must be taxed at 28% as patently some of it is above 42,385 even if mother or father had zero income

as for "its a lot of tax" never base decision on the tax tail wagging the dog. Your mother's attorney must act in her best interest, which may not involve paying the least tax or leaving you with an inheritance given her circumstances

chrismac1

Another factor to consider is that any years for which the property is a qualifying FHL will attract a 10% CGT rate on the eventual disposal. Being a remote FHL owner need not be a barrier to decent profits depending on the location, though clearly paying a managing agent will reduce profit margins.

I have around 20 clients with FHLs here in the Lake District, the better ones make very good returns so there is scope to pay for an agent to manage it and still be OK providing it is a high-end property kitted out to a high specification.

Snowdrop1

thanks for all the information, I will relay it to my dad. Myself and my dad have POA for my mum. She does have rest bite care and carers visit during the week, which my dad pays towards already. Ultimately I think my dad has to decide if he wants to keep the property, and if so how he would feel about renting it out, lots to factor in. Very helpful understanding the CGT situation. Many thanks

p00hsticks

Snowdrop1 wrote: »

the cottage 350 miles away, which has meant its been empty for a year. Yes I would inheriate solely. It's whether having it as a holiday let would add extra stress to my dad, as there are only the two of us and my mum, and we are not sure how much work would be involved particularly as it is so far away. But then again, it's a shame to pay all that tax.

As an aside, who (if anyone) is visiting and monitoring the property now ? Are you comfortable that it's correctly insured and that you are meeting all the requirements for that insurance ?

We have a holiday home and have buildings and contents inusrance specifically for a holiday home, but as one of the conditions they insist that we visit the propery at least once a month. There are also a number of other conditions such as maintaining a minimum temperature ....