Capital gains tax on inherited house

rob7475

Hi,

My mum has been left a small house by a friend who has died recently. The house is a small 1 bed terrace that is in need of renovation.

We are thinking that it is probably worth around 40k in it's current state but it could be renovated for under 10k and sell for around 70k.

Can anyone give me any advice on how to lower the amount of CGT that will be payable? The value of the estate is less than the IHT threshold so would it make sense to submit the value as a bit higher than the 40k estimate that the solicitors had when the will was drawn up?

Thanks

Keep_pedalling

You have to go on the real value at the date of death, so you need a proper valuation. Is your dad still alive? You mum could give him half before starting work and if they did indeed manage to make £20 k profit between them, then their individual £11,100 CG allowance would cover the entire gain so no tax to pay.

Be aware however you may not be able to the entire £10k of renovation costs against that, for instant redecoration and replacing a clapped out boiler would normally be classed as ongoing maintenance costs.

rob7475

My dad isn't alive so that's not an option. I've read that HMRC can take improvement potential in to account when valuing the house. As other houses in the street are selling for around 70k, could I submit a valuation of 60k to take into account improvement potential maybe?

Keep_pedalling

rob7475 wrote: »

My dad isn't alive so that's not an option. I've read that HMRC can take improvement potential in to account when valuing the house. As other houses in the street are selling for around 70k, could I submit a valuation of 60k to take into account improvement potential maybe?

You can't make up a valuation. What was the valuation for probate and who did the valuation?

If you don't have one then a professional valuation should be obtained from a RICS surveyor, who may well include developement potencial in his / her valuation.

RachelMcC1

Hi,

You pay CGT on the profit made. I would suggest getting a valuation first. You can claim the improvements ie, new conservatory against the profit but not general maintenance such as decorating.

Everyone is entitled to an allowance of £11100. So for example, £70k - 40k leaves a profit of £30k - 11000 = 18900 x 10% leaves £1890 tax to pay.

Another option would be for your mum to gift you half of the house, allowing 2 allowances, leaving tax to pay of £780. If nothing was to happen to her within 7 years this would be excluded from her estate for inheritance tax purposes.

Brighton_belle

RachelMcC1 wrote: »

Everyone is entitled to an allowance of £11100. So for example, £70k - 40k leaves a profit of £30k - 11000 = 18900 x 10% leaves £1890 tax to pay.

Isn't it 18% on property for lower rate IT payers. The 10% is on none property capital gains I believe.

Keep_pedalling

Brighton_belle wrote: »

Isn't it 18% on property for lower rate IT payers. The 10% is on none property capital gains I believe.

That is correct.