CGT & Loans

Cliecost

Hi,

I'm not sure if this is in the right area, if not please advise where and I'll repost it.

To quickly summarise (as I'm fairly sure it's a stupid question) -

Wife and I currently live in a house owned by mother in-law, she wants to sell it and loan us the money from the sale to get our own house. I think she doesn't like being a landlord.

If she was to sell it and loan the money to us would she have to pay CGT first?

If so, how is this calculated? The MIL got this house in the divorce with the (now deceased) FIL.


Thanks for any help

booksurr

yes she is liable for CGT and as it is not her main home then she will have to pay any tax due within 30 days of the sale completing.
How much she may or may not have to pay depends on what relief she can claim and how big the gain is.

did she ever live there herself?
what % did she acquire under the divorce?

tell her to read the basics to get her started as it is her liability and HMRC will know when she sells it https://www.gov.uk/capital-gains-tax/overview

Cliecost

booksurr wrote: »

yes she is liable for CGT and as it is not her main home then she will have to pay any tax due within 30 days of the sale completing.
How much she may or may not have to pay depends on what relief she can claim and how big the gain is.

did she ever live there herself?
what % did she acquire under the divorce?

tell her to read the basics to get her started as it is her liability and HMRC will know when she sells it https://www.gov.uk/capital-gains-tax/overview

I read that gov.uk page. Bit tough to get my head around.

No, she never lived here. They got divorced. Outside of whatever the window is she was given the house. Less than 7 years later he died and CGT had to be paid by his estate.

We've been living here for 6 years paying her rent which she pay tax on at the moment.

What do you mean by percentage acquired?

silvercar

Less than 7 years later he died and CGT had to be paid by his estate.

Inheritance tax on death not CGT.

Correct this:

In-laws owned jointly and mother-in-law lived in the property. At some point they divorced and she acquired all the house. Since that point she has been letting it to you.

Is that correct? If so we need to know the value at the time (divorce?) when she took ownership and the value now. Also what percentage she had at the beginning 50%?) and if she owns it all now.

If that is a true picture, then having lived in the property, mother in law will have lots of tax reliefs available to her, so there may not be CGT to pay. If she never lived there, then it is a totally different calculation.

I'm confused as to why someone would love a property to an ex wife in a will, particularly one that she had never owned previously. So was it on divorce or death that she acquired it?

Cliecost

silvercar wrote: »

Inheritance tax on death not CGT.

Correct this:

In-laws owned jointly and mother-in-law lived in the property. At some point they divorced and she acquired all the house. Since that point she has been letting it to you.

Is that correct? If so we need to know the value at the time (divorce?) when she took ownership and the value now. Also what percentage she had at the beginning 50%?) and if she owns it all now.

If that is a true picture, then having lived in the property, mother in law will have lots of tax reliefs available to her, so there may not be CGT to pay. If she never lived there, then it is a totally different calculation.

I'm confused as to why someone would love a property to an ex wife in a will, particularly one that she had never owned previously. So was it on divorce or death that she acquired it?

No, she never lived her. He owned it and a few others. He was going to give it to her as part of the divorce but took too long so by the time he did give it to her it was classed as a gift and not part of the settlement (she rushed through the divorce and he was the nicest man in the world).

It was two flats but as soon as we took it on it was converted into a house (at the FILs expense) and we've been living in t for the past 6ish years paying her rent since.

Not she wants to sell it, loan us the money to then buy a house and we pay her back.

Cliecost

booksurr wrote: »

that is a potential minefield and a disaster!

so he gave it to her AFTER they were divorced? It is vital that you are certain of the timing because if it was after the divorce they were no longer able to transfer assets between themselves on a no gain/no loss basis so she cannot acquire it at his original purchase cost. Furthermore, as it was also outside of the divorce settlement, there is no agreed value as part of a settlement.

Therefore it would appear that the gift was made as though they were effectively strangers at that point so her acquisition cost is £0 since she paid nothing for it

As such she faces as massive CGT bill as the gain will be the difference between what she paid for it (£0) and what it sells for less only her personal allowance of £11,100

eg: if she sells it for £200,000 she will pay CGT on a gain of 188,900, most of which will be at 28%, so she could end up paying around £50,000 in tax

According to the .gov website they say if the value is lower than market value or given as £0 then the CGT is calculated between the market value on the date it was acquired and the sale. So it wouldn't be £0 to £260,000.

Also, he gifted it to her, he just happened to die within 7 years so the estate paid I.T on it.

My next question was going to be how do you work out the value of a property in the past?

TBagpuss

OK, her gain would be:
Current Open Market Value less Open Market Value at the date of the transfer to you.

She may then be able to take into account some expenses, but not normal maintenance costs.
(There is a calculator here http://taxtool.co.uk/ )

Cliecost

Thank you all for all your help. This really is a great place to come for initial advice.

getmore4less

There should have been a CGT assessment when he gifted it

If IHT was paid then there should have been an ascertained value for those purposes.

If you are happy living there would it be worth keeping it.

Cliecost

getmore4less wrote: »

There should have been a CGT assessment when he gifted it

If IHT was paid then there should have been an ascertained value for those purposes.

If you are happy living there would it be worth keeping it.

Believe me I wish I could but it's too small for a growing family.

Apparently when IHT was calculated the exec valued it at £160,000 in 2010. According to Zoopla a similar sized house to mine was sold in 2010 for £200,000.

If I did what I said I want to do and CGT was paid when this house sells would it be calculated for us on the £200,000 to Whatever it sells for, or the £160,000 said on the IHT to whatever it sells for?

booksurr

getmore4less wrote: »

There should have been a CGT assessment when he gifted it

If IHT was paid then there should have been an ascertained value for those purposes.

If you are happy living there would it be worth keeping it.

not how I read it? whether there was or was not an ascertained value at FIL's death is irrelevant

1. MIL divorces FIL, but the financial settlement does not include the house

2. at a later date FIL gifts the house to (ex) MIL. As this is post divorce the MIL acquires the house at its then market value as they are no longer subject to spousal transfer rules. As you say, FIL would at that time be subject to CGT if it was not his home. Whether he did or didn't declare/pay CGT at that time has no impact on MIL now since the divorce pre dates the gift

3. within 7 years of that gift FIL dies. FIL's estate is subject to IHT and the house is a PET within the 7 year rule so its value (on a sliding scale) is added back into FIL's estate - whether IHT was or was not paid as a result has no impact on MIL

4. MIL now proposes to sell the property to the OP and his wife. MIL is therefore liable to CGT based on the gain from the value at 2, the date of the gift, not the value used for IHT as that is related only to the PET element of FIL's estate