Capital Gains on Inherited House?

norvin

I have a Capital gains question and hope there is someone on the forum that can help.
My wife has just inherited her Fathers house. The house itself is worth about £190k. It has a plot of land at the rear about an acre in size. The probate valuer has put a “hope” value of £60k on the land, as there is a question over whether it will get outline permission for development. I have declared £250k value of house and land on the Inland Revenue probate forms. If we succeed in getting outline permission for development, the value of the house and plot will rise to about £400k. We have let the house for six months until we sort out what to do. My wife does not pay tax
We own our house and were thinking of moving anyway.
How would we fare for capital gains if we sold our current house and moved in to my Wife’s father’s house for a while, applied for planning consent whilst living there, then selling that house? The value of the land would only rise once we were in residence, so presumably would be exempt from CGT.
Would that work? Would we need to live in the house for a period of time before selling, if so, how long is reasonable? Is there a better scheme?
I have looked around for an answer but get conflicting messages.
Can someone give me any pointers?

CLAPTON

In general your own private residence is exempt form CGT when you sell.
So yes you can sell your current home without cgt and move into your inherited home.
Assuminmg you actually live in the new home and establish it as you new private residence then when you sell it will be free of cgt.
BUT there is a general exception if the total property comprise more than 5,000 squ metres (about 1and 1/4 acres ) in which case its more complicated and cgt may be applicable. So it depends upon exactly how big the whole plot is.

norvin

Thanks Clapton.
The plot is just over an acre. less than 1 and 1/4 acres.
We will be living in the inherited house, but does anyone know how long is reasonable to be able to establish that the new house is our new private residence, a month, six months, a year?

silvercar

It is a matter of quality not quantity, so if you are actually living there, then there is no minimum time limit. Having correspondence (utility bills, bak statements, employers notified address) registered there and being on the electoral register will all help make your case. If it is your only home you are far less likely to be questioned than if you own other properties that could be your home.

EdInvestor

BTW who is responsible for the tax on the rental income if the estate is still in probate?

norvin

Thanks everyone,
My wife was granted probate this week, the tenants are moving in this weekend, as my wife doesn't pay tax yet, we will declare rental income on her allowance.