Tax implications when selling a house

jackywacky

Hi.
My mother in law moved house in November 2011, the new house cost her £200,000 and she decided to put herself, my wife and her brother as joint owners.
Unfortunately my mother in law died in November 2013 and so my wife and her brother inherited the house, the mother in law was removed as an owner leaving only my wife and her brother as joint owners. The transaction did not attract any Inheritance Tax
My wife and her brother are now considering selling the house for £240,000, if they go ahead what tax implications would there be?
Thanks for reading

brodawel

I think they would pay CGT on the gain of £40,000, less their annual allowance of £11,100. I think the current rates are 18% or 28% depending on their tax bands.

So they each made a gain of £20,000 less £11,100 allowance, they each pay CGT on £8,900

Others will give you more accurate info plus any other factors to be taken into account

jackywacky

I done some googling and also came up with £8,900. Then I came to this thread and see you're thinking the same. So thanks for that. It may be a little less than that if solicitor fees are taken off but that's not a major concern at the moment.
Another thing I'm not sure about is would the gain be calculated on the value of the house when she died rather than we she bought it.

brodawel

There are probably lots of things that could reduce the tax further, such as expenses i.e. costs of improvements or such like. Also if either of them lived at the property might make a difference. Hopefully you'll get some further posts from people who know more about it.

silvercar

So, your wife had a share in property worth £66.7k in November 2011 that is now worth £80k, so gain of £13.3k. And a (one sixth) share acquired November 2013. Say the property was worth 220k at the time of death, the gain on that inherited share would be £3.3k.

Total gain by your wife is £16.6k. Less £11.1k CGT allowance (assume not used on anything else). So you have £5.5k to be taxed at 18% or 28% (or combination) depending on personal tax situation.

Same for her brother.

Azure11

I'm just wondering if, as they already owned a third each, whether the other third will have CGT calculated from the date MIL died as that is when they took ownership of it and two-thirds would have the CGT from the date they bought it?!

Azure11

Yes that is what I was thinking silvercar!

silvercar

Azure11 wrote: »

I'm just wondering if, as they already owned a third each, whether the other third will have CGT calculated from the date MIL died as that is when they took ownership of it and two-thirds would have the CGT from the date they bought it?!

Correct. Also assuming that they haven't lived in it as their main residence since acquiring any ownership.

kinger101

Your post doesn't quite contain enough information, as for the purpose of CGT, beneficial ownership is important and not legal ownership. Two situations are possible;

(a) siblings were not beneficial owners until the property was inherited;
(b) siblings were each beneficial owners of 1/3rd the property while the mother was alive, and gained and extra 1/6 each on the death of the mother.

In scenario (a) the base value and ownership date of the property will be the probate value.

In scenario (b), for each sibling (1/3) will be based on the purchase price (i.e, £66,667), and the remaining (1/6) share will be based on probate value.

For the sake of a calculation, I'll assume (a), and also assume neither of them have lived in the property (and are thus not entitled to residence relief). I've also applied rules from 6 April 2016 (new tax year). I'll also assume a probate value of £210K

[note on edit - silvercar has already posted based on mechanics of (b) as well]

Each sibling is taxed on their share,

Sale price £120K
Less cost £105K (half of probate value)

Gain= £15K

CGT annual exemption = £11,100

Taxable gain = £4,900

The rate at which they will pay CGT then depends on their tax band (basic/higher) and whether they already own another property.

If they don't own another property, the rates are 10% / 20%. If they do own another property, it's 18% / 28%

So the tax will be between £490 and £1,372.

In practice, you would also be able to deduct the costs of selling the property when calculating the gain. What you really need to do is determine at what point they had "beneficial ownership". If they had not right to occupy while the mother was alive, or collect rent from letting for example, they'd not have beneficial ownership. But I'm not sure exactly what tests are used. HMRC might be able to help you with this, as well as determining a probate value (if you don't already have one).

jackywacky

Cheers all I know have a greater understanding of CGT and what needs to be paid.
Thanks very much to everyone

Baxter100

Slight tangent, but why doesn't CGT factor in inflation?