CGT on Inherited House Sale

Malcmandy

konark wrote: »

I find it strange that a house worth £440,000 in 2000 is now only worth £550,000, most house prices have tripled since 2000.

Those are the Probate valuations that we were given. The latter being valuation for sale, Probate valuation a year ago was £520,000

Malcmandy

tlc678910 wrote: »

This is probably what Tom99 said but I can’t understand the maths:

Think of the house as divided into four quarters - each of equal value. Dad’s gift to each of you was a quarter of the house and mums gift to each of you was a quarter of the house.

Work out the gain from dads probate value until sale value - you each owe one quarter of that gain. Work out the gain from mums probate value until sale value - you each owe a quarter of that gain

Less any personal allowances, other allowances and deductible expenses.

Tlc

Edit: just to add any years (months) that you lived in the property would be exempt from CGT.

Many thanks. Neither of us lived in the house, so the only reductions would be the fees and allowances. However, part of my question was, when the gain would be calculated on the different percentages ? The whole lot in 2019-20 when sold or part in 2017, when my mother passed away ?

Tom99

Malcmandy wrote: »

Many thanks. Neither of us lived in the house, so the only reductions would be the fees and allowances. However, part of my question was, when the gain would be calculated on the different percentages ? The whole lot in 2019-20 when sold or part in 2017, when my mother passed away ?

You calculate the gain when you make a disposal which will be in 2019/20. You offset the acquisition cost from the two dates 2000 and 2017 plus disposal costs and your annual allowance (£12k in 2019/20 I think)

Malcmandy

Tom99 wrote: »

You calculate the gain when you make a disposal which will be in 2019/20. You offset the acquisition cost from the two dates 2000 and 2017 plus disposal costs and your annual allowance (£12k in 2019/20 I think)

Thank you. I believe that I now understand the situation from the replies that have been kindly given.

Thank you again to all.

00ec25

Malcmandy wrote: »

However, part of my question was, when the gain would be calculated on the different percentages ? The whole lot in 2019-20 when sold or part in 2017, when my mother passed away ?

CGT is based on the gain over the entire time you owned it. Where you acquire the property in stages, your gain is the difference between what you sell it for, and what in total it cost you to acquire the share you sell. Tom has already given you the maths:

you and your brother own the property 50/50

using your numbers it will sell for 550, so the CGT you will pay will be based on the fact your individual position will give you half = 275 for selling 50%

how much that 50% cost you to acquire is made up as follows:

in 2000 you acquired 25% . The probate value of the whole property (ie 100%) was 440, so your own share of that "cost" was 440 x 25% = 110k

from 2000 to 2017 you owned 25%

in 2017 you acquired a further 25% on mother's death. The same position applies: Probate value 520 x 25% = 130

so by 2019 you own 50% and that has cost you 110 + 130 to acquire in 2 separate events, so 240 in total

now when you sell your 50% your personal CGT position is:
share of sale price = 275,000
cost to acquire that 50% = 240,000
gain = 275 - 240 = 35,000

deduct personal CGT allowance (19/20 rate = £12,000) and of course any costs you incur in selling (your 50% share of EA frees and legal fees) and you will be left with a rather low amount to be taxed given you will receive around 275,000 but pay tax on less than 23,000
at worst case scenario (all at 28%) that would be no more more than £6,440 of tax to pay out of the around 275,000 you will get in cash from selling your 50%

Mutton_Geoff

Although I can get my head round tax calculations, it is worth employing a tax accountant to sort this out for you since they will be up to date on any avoidance methods. They are almost always likely to save you more tax than the fee they will charge you.

Malcmandy

00ec25 wrote: »

CGT is based on the gain over the entire time you owned it. Where you acquire the property in stages, your gain is the difference between what you sell it for, and what in total it cost you to acquire the share you sell. Tom has already given you the maths:

you and your brother own the property 50/50

using your numbers it will sell for 550, so the CGT you will pay will be based on the fact your individual position will give you half = 275 for selling 50%

how much that 50% cost you to acquire is made up as follows:

in 2000 you acquired 25% . The probate value of the whole property (ie 100%) was 440, so your own share of that "cost" was 440 x 25% = 110k

from 2000 to 2017 you owned 25%

in 2017 you acquired a further 25% on mother's death. The same position applies: Probate value 520 x 25% = 130

so by 2019 you own 50% and that has cost you 110 + 130 to acquire in 2 separate events, so 240 in total

now when you sell your 50% your personal CGT position is:
share of sale price = 275,000
cost to acquire that 50% = 240,000
gain = 275 - 240 = 35,000

deduct personal CGT allowance (19/20 rate = £12,000) and of course any costs you incur in selling (your 50% share of EA frees and legal fees) and you will be left with a rather low amount to be taxed given you will receive around 275,000 but pay tax on less than 23,000
at worst case scenario (all at 28%) that would be no more more than £6,440 of tax to pay out of the around 275,000 you will get in cash from selling your 50%

Thank you, so much, for taking the time to give such an explanation plus the figures. Very much appreciated.:)

00ec25

Mutton_Geoff wrote: »

Although I can get my head round tax calculations, it is worth employing a tax accountant to sort this out for you since they will be up to date on any avoidance methods. They are almost always likely to save you more tax than the fee they will charge you.

waste of money unless there are other things which also need advice on
OP has inherited a property that he has never lived in whilst owning it. No mitigations around that

Malcmandy wrote: »

I an a non-taxpayer for 2019-20.

If necessary, transfer % can be made to spouse in order to use his CGT allowance on sale. Basic rate tax payer

23,000 gain after allowance.
lets assume 1% EA fee on 550 sale price and lets assume legal fees for the sale are "modest" £500
(550x1%) = 5,500 + 500 = 6,000 fess split 50/50 so Op share 3k

therefore, deduct 3k fees to give net taxable gain is now down to £20,000

as a non taxpayer that means all of the gain falls within the basic rate band of £50,000, so all of the gain is taxed at 18%

20,000 x 18% = £3,600 tax payable
if you can't pay £3,600 tax out of £275,000 cash from the sale, then you can't afford an accountant in the first place

OP suggests making the wife a co-owner.
In that case he has a gain of 17,500 (ie his 35k split 50/50 with the wife) less 1/4 of the 6k fees = 15,000
now deduct his personal allowance 12,000 leaving £3,000 taxable
3000 x 18% = £540

Op wife also pays £540 tax

so, joint ownership saves 3,600 - 540 - 540 = 2,520 of tax
now add back costs of:
- legal fees to make wife an owner ?
- land registry fees to record change of ownership ?
- property currently let so additional costs for wife having to submit a tax return for her share of the rental profit?

risk of HMRC invoking settlements legislation to overturn ownership change between spouses as it was done solely to avoid tax is .... high/medium/low?

overall much simpler just to leave as it and pay a trivial sum of tax

Malcmandy

00ec25 wrote: »

waste of money unless there are other things which also need advice on
OP has inherited a property that he has never lived in whilst owning it. No mitigations around that

23,000 gain after allowance.
lets assume 1% EA fee on 550 sale price and lets assume legal fees for the sale are "modest" £500
(550x1%) = 5,500 + 500 = 6,000 fess split 50/50 so Op share 3k

therefore, deduct 3k fees to give net taxable gain is now down to £20,000

as a non taxpayer that means all of the gain falls within the basic rate band of £50,000, so all of the gain is taxed at 18%

20,000 x 18% = £3,600 tax payable
if you can't pay £3,600 tax out of £275,000 cash from the sale, then you can't afford an accountant in the first place

OP suggests making the wife a co-owner.
In that case he has a gain of 17,500 (ie his 35k split 50/50 with the wife) less 1/4 of the 6k fees = 15,000
now deduct his personal allowance 12,000 leaving £3,000 taxable
3000 x 18% = £540

Op wife also pays £540 tax

so, joint ownership saves 3,600 - 540 - 540 = 2,520 of tax
now add back costs of:
- legal fees to make wife an owner ?
- land registry fees to record change of ownership ?
- property currently let so additional costs for wife having to submit a tax return for her share of the rental profit?

risk of HMRC invoking settlements legislation to overturn ownership change between spouses as it was done solely to avoid tax is .... high/medium/low?

overall much simpler just to leave as it and pay a trivial sum of tax[/QUOTE



I am actually a She ! So my husband, would become co-owner, if we did decide to do a transfer. He is a basic rate taxpayer, as is my present co-owner sibling.
The rental has now terminated as of the middle of this month as we wish to update the property for sale in the next tax year. So no additional tax costs on rental income in the next tax year.
There is not a mortgage or any debts on the property and there is also the possibility of filling in the various forms without using a solicitor, thus saving legal fees.
Hopefully, this scenario and all the helpful comments, will be of use to other posters. Thanks again.