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Capital Gains Exemption - Dependant Relative

My Nan and Grandad purchased a house a long time ago (well before 1988) for my Great Nan and Great Grandad to live in (rent free - bills only).

My Great Grandad died years ago and my Great Nan died last week.

I moved in with my Great Nan about 2 years ago as rent in London was expensive and this house was only a two hour commute. This also meant I could care for her and be there at the end.

We assumed they would have to pay capital gains tax, but I read about an exemption if you have a ‘dependant relative’ living there.

Does anyone know what a ‘dependent relative’ is?

The current agreement is that I live here for another year before moving out or deciding if I want to buy the place with my boyfriend. I’m not looking forward to renting a single room in London again for a lot of money.

Do I still count as a dependent relative (I am their grand daughter). I don’t want to be the cause of them paying capital gains tax - the money is their retirement fund.

Thanks!

Comments

  • datlex
    datlex Posts: 2,252 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    A dependent relative is someone such a spouse, a child, an adult relation with care needs who is dependent on them for financial support. It is unlikely you qualify as that.
    Paid off the last of my unsecured debts in 2016. Then saved up and bought a property. Current aim is to pay off my mortgage as early as possible. Currently over paying every month. Mortgage due to be paid off in 2036 hoping to get it paid off much earlier. Set up my own bespoke spreadsheet to manage my money.
  • Would my Great Nan and Grandad?
  • AdrianC
    AdrianC Posts: 42,189 Forumite
    Eighth Anniversary 10,000 Posts Name Dropper
    Sorry, would your great grandmother be dependent on who...? You? Your grandparents?

    You didn't own the property, so it's not your CGT liability so - no.
    They didn't live there, and your great-grandmother was financially independent of them so - no.


    They bought a house decades ago, and never lived there.
    Now they're selling it.
    CGT will be payable, yes.
    You are not "the cause" of this. Their being wealthy enough to afford to own a second property which has increased in value substantially is the cause of it. They will be paying a percentage of that increase. They will still be far, far better off than if they hadn't bought it.
  • Sorry, maybe I wasn’t being clear.

    I have read a lot of posts about people selling houses in which their parents lived and being excempt from capital gains.

    I am asking that if my Grandparents sold the house now - would they be paying capital gains as it was purchased before 1988 for their parents to live in rent free?

    If they are - then I don’t want to live here for a year and find that they are no longer excempt.
  • For example:

    There used to be a simple way of providing a home for Aunt Mildred without unpleasant tax consequences. "Dependent relative relief" meant that if you bought a property for an elderly (generally taken as 65 and over) or infirm relative, yours or your spouse's, and they lived rent-free, you did not have to pay CGT when it was sold.
    This worked in the same way as principal private residence relief on your own home.
    But the relief was withdrawn from April 6 1988. Now it can only be claimed if you sell a property that was occupied by a qualifying relative before that date.
  • xylophone
    xylophone Posts: 45,428 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    My Nan and Grandad purchased a house a long time ago (well before 1988) for my Great Nan and Great Grandad to live in (rent free - bills only).
    my Great Nan died last week.


    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65671


    Private residence relief: dependent relative: at 5/4/88: qualifying


    Where the gain on a disposal qualifies for this transitional relief the following periods will qualify

    any period before 6 April 1988 in which the dwelling house was the sole residence of a dependent relative
    any period after 5 April 1988 in which the dwelling house was the sole residence of the dependent relative who occupied it on that date


    Relief will continue to be due to anyone who had provided a dwelling house to a dependent relative before 6 April 1988 in respect of that dwelling house as long as it is occupied by that dependent relative. So to that extent, dependent relative relief can still arise after 6 April 1988.
  • 00ec25
    00ec25 Posts: 9,123 Forumite
    1,000 Posts Combo Breaker
    edited 18 February 2019 pm28 10:55PM
    you are asking a very reasonable question given the significance of the date of purchase and who bought it.

    however, on the info so far, it is not clear if, at the date of purchase, your GREAT grandparents were in fact "qualifying" dependent relatives of your own grandparents, as the latter owned it.

    in order to qualify as a dependent relative on or before 6 April 1988 (they cannot after that date) in very simple terms GREAT grandparents had to have been "incapacitated by old age" on or before that date. As GREAT granddad died after 1988, the great grandma cannot qualify as being a dependent widow as at 5 April 1988, so the qualification rests entirely on whether one, or both of them, as at 5 April 1988, can be classed as so "incapacitated"

    so how old were they on 5 April 1988?
    if at least one of them was >65 years old they are OK
    https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65575
    if not, there is no claim to dependent relative relief, as they were not qualifying individuals

    (Note - dependency is not based on being financially "dependent": https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65573 )

    if they do qualify, then your grandparents, as owners, will not have any CGT liability for the period between date of purchase (or 31 march 1982 if purchased before then) and the date of greatgandma's death last week.

    You are not dependent on your grandparents. so forget that line of thought.

    The question is simply now that GREAT grandparents are dead, your own grandparents will be exposed to CGT for sure from date of GREAT Nan's death last week, as their ownership from that date onwards will not attract any CGT relief. They may have full relief for the period up to GREAT nan's death, provided the qualifying criteria are met. Perhaps an example will help.... purchased in 1983 for 25k. Great grandma died in 2019 and was a qualifying dependent relative. You move in and live there for 2 years until 2021 when grandparents sell it for 500k having owned it for 38 years .
    Gain 500 - 25 = £475k. Grandparents claim dependent relative relief for 36 of the 38 years they owned it. 475 x 36/28 = 450k Grandparents are left with 25k gain against which they claim their allowance of 11.7k each owner so they would be taxed on 25-11.7-11.7 = £1,600 @ (worst case) 28% = £448 tax to pay

    In summary
    If Great nan was at least 96 years old when she died, there is a good chance that your grandparents can claim dependent relative relief against their own CGT.
    But, now that she is dead, as they do not live there themselves, the clock is ticking, however, you could live there for a year or two and the gain they will then make may still be covered by their CGT personal allowance, so don't make hasty decisions just because you don't understand tax in enough detail or have not crunched the numbers to see what tax is actually payable. I cannot image for one second grandparents would struggle to pay £448 of tax if they sold the property for £500,000 now would they :)
  • silvercar
    silvercar Posts: 48,710 Ambassador
    Part of the Furniture 10,000 Posts Academoney Grad Name Dropper
    To add to 00ec25, if your great grandad was over 65 by April 1988 then there may be some CGT exemption until he died.

    If there is some CGT exemption, from either great grandparent it is applied proportionally according to length of ownership, so it may be enough to couple with the CGT allowance of £11,500 per grandparent to reduce the CGT to nil.
    I'm a Forum Ambassador on the housing, mortgages, student & coronavirus Boards, money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
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