Capital gains on 2nd property

Keep_pedalling

"the gain is the gain between what it "cost" to acquire and what it sells for. Debt is irrelevant"

That is not true in this case, as it was a gift to him it cost nothing to acquire, but for tax purposes the gain will be seen as the disposal value minus value of the house at time it was gifted to him. If his mother lives n a part of the country where house price inflation is very low, there may be little or no tax to pay as it could fall under his annual exemption.

BoGoF

You should really seek some professional advice.

Keep_pedalling

BoGoF wrote: »

You should really seek some professional advice.

Which unfortunately is what both he and his mother should have done back in 2005.

cornwell74

Again, I find the tone here very odd. I sincerely appreciate any help, but don't get why people are unnecessarily aggressive with it.

So to tackle some points;

1. In 2005 I did have professional assistance. However it was 12 years ago and my recollection is a bit hazy on the details. Also, legislation changes. And of course my mother is relatively healthy so I don't envisage anything happening in the short or hopefully medium term.

2. KP made 2 points. Firstly (s)he commented on IHT, hence my reply on the 7 year rule. The second comment regarding deprivation of capital is germane but after what will be more than 12 years it would be challenging to establish that there was an expectation of care needs, which seems to be the test.

3. The flat was not my mother's main residence when it was gifted. Looking back I can see that this was implied, so apologies.

4. Of course the only advantage to mortgaging the property would be if the addition cost arising from the delta in rates would offset any tax burden. However as it's been made clear to me that debt is not considered in the calculations so that's moot.

So to summarise. It looks like (a) IHT should not be an issue as it wasn't her main residence, therefore the gift had no 'reservation' and the 7 year rule is in force (b) CG applies to [(sale value) - (market value at time of gift)], but I could mitigate this by using my wife's allowance. (c) There is a risk, which I would consider to be a managed one, that the state could take steps to recover any care costs under the deprivation of assets rules.

One last point on works to extend - I see that it would make little financial difference but it's something I'd like to do to increase my mother's quality of life. Assuming the works are deductible, that's a bonus.

I think that I'll draw this to a close. I do appreciate the input and it has been helpful.

BoGoF

OP - it would be helpful if you actually gave us the full story. According to your other thread your mother only moved in to the property in 2012 and was previously rented out - https://forums.moneysavingexpert.com/discussion/3766749

This changes the position somewhat in that letting relief may also be due

Pennywise

Can we just check that when you use the word "wife", you are legally married? Just that a lot of people loosely say "wife" to mean common law partner, and there is no tax exemption between common law partners, only legally married/civilly partnered couples.

cornwell74

Apologies, I wasn't being deliberately vague. House was gifted 2005, mother moved in 2012. She does not pay rent.

Pennywise yes legally married.

BoGoF

I dont think the tax you would have to pay will be as much as you think it is. The most important figure (and I dont think you have given it yet) is the market value when it was gifted in 2005.

cornwell74

I expect it would have been around £70k.

So given that between myself and my wife I get relief on £22.6k, at present value it's only £8.4k that's subject to tax.

All in all, it seems I'm in a reasonable position.

xylophone

Your mother owned a property which was not her main residence.


She gifted it to you in 2005. She accounted for any CGT payable at the time?

You obtained a mortgage (?) and rented it out?

Your mother moved back into the property in 2012, is still there and pays no rent?

There is no longer any mortgage/ the mortgagee is content with the above?