Reducing CGT liability on inherited property

DKM2015

Hi new to the forum. I wonder if someone can advise me please regarding CGT. Both my parents died in March 2011 I inherited the house as the only relative. I obtained probate and valued the house at £190k and no other assets at time of the death of the surviving parent. I spent £10K renovating it and stupidly let my son live there, which was only supposed to be for 6 months, a partner and 2 children later he is still there.He purchased his own property but has taken nearly 4 years to decorate it. Looks like finally he should be out within a couple of months. My problem is that it has probably gained £60 to £70 K in value and the CGT bill will be enormous. He has paid no rent but the property has cost me money due to maintenance etc. I read somewhere that I can not claim the £10K renovation cost against the CGT because it was over 4 years ago. I also read that if the property is let a £40 K allowance can be claimed against CGT. Does anyone know if I could claim this allowance or is it only claimable if I had been receiving rent or a peppercorn rent of say £1 per annum.

booksurr

DKM2015 wrote: »

My problem is that it has probably gained £60 to £70 K in value and the CGT bill will be enormous. He has paid no rent but the property has cost me money due to maintenance etc.

you need some perspective, CGT is a tax on the gain, so you only pay some tax if it increases in value. Would you rather not pay tax because it has decreased in value over the last 4 years? Of course you would prefer to trouser the full 100% of the gain, but life is not like that, taxes are required to support society and you have made a gain which is rightly going to be taxed

now another dose of perspective - CGT rates are either 18% and/or 28% depending on your total for the tax year. So you get to keep at least 72% of whatever your gain has been. Also you are entitled to the CGT personal allowance £11,100 (15/16 tax year rate)

so: you have a gain of 60k - 11,100 = 48,900 taxable. The worst it can be is all at 28% so you will sell a house for (190+60)=£250,000 and at worst pay £9,780 (ie 4% of the gross proceeds) as tax, hardly a huge amount given you did not pay any inheritance tax so you are now >£240k richer whereas 4 years ago had you sold then you would have had 50k less. So an extra 50K in 4 years is not a bad result is it?

DKM2015 wrote: »

I read somewhere that I can not claim the £10K renovation cost against the CGT because it was over 4 years ago. I also read that if the property is let a £40 K allowance can be claimed against CGT. Does anyone know if I could claim this allowance or is it only claimable if I had been receiving rent or a peppercorn rent of say £1 per annum.

incorrect: no time limit for improvement costs,

incorrect re letting relief: that is available only if you yourself have lived in the property as your own main home. Clearly you haven't, and to do so now would require a lot of upheaval in your personal life to make sure that your occupation was "a matter of fact" as that is the test HMRC would apply before accepting such a claim

statex

I was advised by my accountant to transfer the ownership of a second property to 3 other relatives ie my wife and 2 sons. Therefore enabling me to benefit from £44 k CGT allowance and reducing my liability to nil. I am not sure if this is legal though.

CLAPTON

statex wrote: »

I was advised by my accountant to transfer the ownership of a second property to 3 other relatives ie my wife and 2 sons. Therefore enabling me to benefit from £44 k CGT allowance and reducing my liability to nil. I am not sure if this is legal though.

you can give away anything you own
of course the property won't be yours anymore

if you give away a property then that would be a disposal for cgt purposes and cgt would be payable at the time of disposal although gifts to a wife is tax free

when they sell the THEY benefit from 3 cgt allowances on any gain since their acquisition

booksurr

statex wrote: »

I was advised by my accountant to transfer the ownership of a second property to 3 other relatives ie my wife and 2 sons. Therefore enabling me to benefit from £44 k CGT allowance and reducing my liability to nil. I am not sure if this is legal though.

yes each owner is entitled to their personal allowance, nothing illegal about that , BUT

transfer into the names of 2 sons is a CGT disposal so will trigger your CGT calculation for the % given away to them, so means you may have to pay CGT now long before the property is actually sold for cash

transfers to the wife do not count as trigger disposals but the wisdom of doing so if the property was once at any time your main home before marriage may be counter productive as you would lose part of your claim to main residence relief. Obviously if never your home then by all means tfr to the wife and add her personal allowance into the pot.

kidmugsy

Would there be any milage in gifting 25% to your wife now, 25% to one child in this tax year, and 25% to the other child next tax year?

It sounds as if CGT will thereby be avoided. But you, as a couple, will have given away half the value.

Pennywise

statex wrote: »

I was advised by my accountant to transfer the ownership of a second property to 3 other relatives ie my wife and 2 sons. Therefore enabling me to benefit from £44 k CGT allowance and reducing my liability to nil. I am not sure if this is legal though.

Assuming no other pertinent facts, your accountant is a pillock. Your "gift" to your sons is deemed a sale at open market value so would create a capital gain on you just as if you had sold those shares to third parties. Your gift to your wife (assuming you are legally married) is exempt though, so your accountant was a third right!

statex

I thought the accountant was talking rubbish. One question about it being my main home. The inherited house was owned by my parents I have not lived there as my main address for several years but it was previously my PPR for 20 years.I have not lived there since inheriting the property. Does that make any difference?

silvercar

statex wrote: »

I thought the accountant was talking rubbish. One question about it being my main home. The inherited house was owned by my parents I have not lived there as my main address for several years but it was previously my PPR for 20 years.I have not lived there since inheriting the property. Does that make any difference?

To make a difference you have to have lived in it, as your PPR, during a time that you had some ownership of it.

So it having been your childhood home doesn't normally count.