Capital Gains tax on a family purchase

TB1987

Hi all,

I am hoping somebody can help me please, bit of a long story below!

In November 2015 we bought our house from my in laws. It was a discounted purchase in which we used the difference in the price they were offering to sell to us and the house value as our deposit.

My in laws always knew we were only going to stay in this house for a few years and we are planning on putting the house up for sale in Spring 2018. They were obviously totally fine with that. They don't live here at all and haven't since May 2010 - we rented it from them between then and November 2015 when the mortgage began. We didn't have any official contract between us for the renting etc, we just paid them rent via standing order each month.

Now in the last couple of months my mother in law has said we can't sell the house for 3 years because it would cost them. She has this habit of telling you half stories, not finishing sentences etc which can be annoying and on pushing her on this she doesn't know totally what it is but she thinks she would be liable for something. After doing a bit of research and digging, I think she means she will have to pay CGT if we try to even put the house on the market within the 3 years. But I can't find any info on this 3 years idea she seems to have in her head, especially with relation to a family purchase where both parties are still alive.

Does anybody know what she could be referring too? I hope I have posted this in the right place and thanks for any help you may be able to offer!

Pixie5740

You did have an official contract. You were paying rent in exchange for exclusive occupation of the property therefore, even if nothing was written down, you will at least have had a Contractual Periodic Tenancy. The rent you paid would have been subject to income tax.

Your MIL is talking pish. You selling the house has nothing to do with any Capital Gains Liability for your inlaws regardless of whether you sell it now, next week or 10 years later. Your inlaws should have declared the disposal of the property already in their tax return for 2015/2016.

Keep_pedalling

Any capital gains liability they had on the property would have kicked in the moment they sold it to you, and it would have been based on the market value not the purchase price.

Either they already owe CGT or they don't but either way the date you sell the property makes no difference.

It does sound like the ILs have been evading both IT and CGT and are now in a panic about it.

G_M

Between 2010 & 2015 the propert was owned by the in-laws but was not their primary residence.

Therefore when they sold it they may have been liable for CGT (assuming it increased in value by more than their allowance - note "increased in value" so market value, not the value they sold it for).

Whether you keep or sell the property now makes no difference at all.

No idea where she got this '3 year' busines!

See

https://www.gov.uk/tax-sell-property

Keep_pedalling

Did they ever live in this property and if so how long for?

TB1987

Thanks so much all. I did wonder where it had all come from but she is a very hard person to talk to things about that. They never paid tax on their extra income from us - to be honest they are very simple people and don't think about things like that. She won't be panicking about anything as she won't realise that they did things 'under the radar'. She just gets these ideas in her head every now and then and it's not like it came from either of our solicitors at the time of sale, nor as she had advice since then.

I did wonder about the extra tax they should be paying over the years but to be quite blunt, it's their problem and not ours. I couldn't bury my head in the sand like that.

G_M

Income tax evasion is illegal (as is capital Gains Tax).

Report here:

https://www.gov.uk/report-an-unregistered-trader-or-business

or

https://online.hmrc.gov.uk/shortforms/form/TEH_IRF?dept-name=TEH&sub-dep t-name=&location=39


Or you could suggest they declare it themselves here:

https://www.gov.uk/undeclared-income

theartfullodger

G_M wrote: »

Income tax evasion is illegal (as is capital Gains Tax).........

Whilst many consider Capital Gains Tax illegal, perhaps the respected G_M meant "as is evasion of CGT..."

TB1987

Keep_pedalling wrote: »

Did they ever live in this property and if so how long for?

They did - for 20 years

Keep_pedalling

TB1987 wrote: »

They did - for 20 years

In that case it is probable that no CGT is owed, unless there was a very large gain between the initial purchase price and market value when they sold to you. They owned the property for 25 years and lived in it for 20, and the last 18 months of ownership is also exempt from CGT. Therefore their taxable gain can be roughly calculated as follows

Taxable gain = total gain - (total gain / 25 x 21.5).

Assuming they owned the property jointly then they each have an annual allowance of £11,000, so if the above sum comes to below £22k then there is no tax to pay.

They can also claim letting relief, however they also need to declare the rental income and pay IT on that.

They should probably consult an accountant and get their tax affairs in order, or risk falling fowl of HMRC which could be far more expensive.

G_M

theartfullodger wrote: »

Whilst many consider Capital Gains Tax illegal, perhaps the respected G_M meant "as is evasion of CGT..."

I know what I meant and I meant what I know Capital Gains Tax is a travisty and whoever first came up with the concept should be lined up against a wall along with all the Remainers single dads teenage mums bigots racists immigrants bankers tabloid journalists druggies 2nd property owners car drivers and shot.