CGT on a second property

jonsurrey

Advice much appreciated!!

My In-laws in their infinite wisdom signed over the ownership of their home to my wife over 15 years ago, in this time they have lived in the property and paid for everything.

We are now selling our house and the second (in-laws) house to purchase a house with a annexe so we can care for them as they get older.

Can someone advise us on what the CGT liability will be or how to work it out and or reduce it!

The value of the property is £365K, the value 15yrs ago was £185K

many thanks

Jon

00ec25

jonsurrey wrote: »

Advice much appreciated!!

My In-laws in their infinite wisdom signed over the ownership of their home to my wife over 15 years ago, Oh dear!! DIY tax planning fail in this time they have lived in the property and paid for everything.

We are now selling our house and the second (in-laws) house to purchase a house with a annexe so we can care for them as they get older.

Can someone advise us on what the CGT liability will be or how to work it out and or reduce it!

The value of the property is £365K, the value 15yrs ago was £185K

many thanks

Jon

gross gain 365 - 185 = 180k
I assume your wife has never lived in it as her main home whilst she was an owner of it? Note that she cannot claim it was her main home whilst she was married to you as a married couple can only have one main home between them, and it would be the one you were living in, which I'll assume you not the out-laws place.

your wife will incur some legal and EA fees when she sells the property. Those costs (£x) can be offset against the gross gain.

your wife is also able to claim her CGT allowance of £11,300

your wife therefore will have a net taxable gain of 180,000 - £x? - 11,300 = 168,700
depending on how much money she earns herself she will pay CGT at 18% and (mostly) at 28% on that sum. The worst case therefore would be all at 28% giving a tax payable of, at worst, £47,236

CGT basics explained here: https://www.gov.uk/capital-gains-tax/overview

CGT is based on the concept of "beneficial owner" which is not the same as "legal owner" although normally the two are one and the same. Your wife was clearly made the legal owner, but I assume nothing is in writing to alter the presumption that she is also the beneficial owner, ie. entitled to the money from the sale.

A possible way to reduce that is to try and unpick the original transfer by claiming that the parents occupy the property under an interest in possession trust and therefore remain the beneficial owners. However, as that clearly is not currently the case, it would need to be "created" retrospectively and for that you would need professional legal and tax advice

Pennywise

Did the in-laws declare a capital gain on the difference between their purchase price and the value as at date of transfer? Your "base cost" will be the same as the deemed sale price used by the in-laws in their CGT calculation.

00ec25

Pennywise wrote: »

Did the in-laws declare a capital gain on the difference between their purchase price and the value as at date of transfer? Your "base cost" will be the same as the deemed sale price used by the in-laws in their CGT calculation.

it is stated to be the in-law's home so the base cost for the Op would be its market value at date of transfer, given the Op's wife is of course a connected person. I have taken that as read to be the basis of the quoted 185k value 15 years ago, although of course that would need confirmation for the real calculation.

the in-law's gain on original purchase would be irrelevant surely.