Capital Gains Tax Question from sale of second house

Iiyama

[FONT=&quot]Hi all I'll try to keep this brief.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Elderly Father in law via a solicitor 15 years ago transferred his house into his daughters name while he continued to live there rent free. He has now moved in with us and we are selling that house.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Is there a tax liability on this sale? I have only tonight read a little on Capital Gains Tax and its confusing. The property is selling for under 100,000. We are both retired and receiving NHS pension as our only income.[/FONT]
[FONT=&quot] [/FONT]
[FONT=&quot]Advice appreciated.[/FONT]

00ec25

yes CGT is liable

the owner of the property does not live in that property as their own main/only home based on what you say since she appears to be your wife and therefore is deemed to live with you for tax purposes as a married couple, even if she does not co-own where you now live

the capital gain would be based on the difference between its market value 15 years ago at date of gift and what it sells for now

I recommend your wife gets a professional valuer to work out the cost 15 years ago because in tax speak the transaction was between "connected persons" (father and daughter). HMRC require that market value must be used and that of course is somewhat of an open ended debate 15 years later, so you may need someone with creditability to be the origin of your value when HMRC check your figures against their own.

Your father in law was a well meaning, poorly advised person who has now generously caused your wife to donate voluntary tax to GB Plc.

Slithery

The current owner (the daughter) will be liable for CGT when the property is sold. Whether or not it is more than £0 will depend on the market value 15 years ago and the value you sell it for although I expect that after this amount of time there will have been a significant gain.

What was the property valued at 15 years ago, and how much is the expected sale price today?

p00hsticks

Slithery wrote: »

The current owner (the daughter) will be liable for CGT when the property is sold. Whether or not it is more than £0 will depend on the market value 15 years ago and the value you sell it for although I expect that after this amount of time there will have been a significant gain.

It's worth pointing out at this stage to avoid panicking the OP too much that everyone has a £12,000 CGT allowance, so tax would only be due on anything over that amount.

Given that the value of the property even now is apparently under £100k, there may be little CGT to actually pay.

G_M

p00hsticks wrote: »

It's worth pointing out at this stage to avoid panicking the OP too much that everyone has a £12,000 CGT allowance, so tax would only be due on anything over that amount.

Given that the value of the property even now is apparently under £100k, there may be little CGT to actually pay.

Well if we're pointing out things (!), it's worth pointing out at this stage that if the OP has used their £12K CGT allowance elsewhere (eg selling shares or the yacht in the Med) then the £12K cannot be claimed for the property sale......

Iiyama

p00hsticks wrote: »

It's worth pointing out at this stage to avoid panicking the OP too much that everyone has a £12,000 CGT allowance, so tax would only be due on anything over that amount. [FONT=&quot]Given that the value of the property even now is apparently under £100k, there may be little CGT to actually pay.[/FONT]

[FONT=&quot]
[/FONT]
[FONT=&quot]Thank you. Yes, we are a bit concerned. It appears that the legal documents my wife has from the transfer 15 years ago does not have a value of the property on it. I don’t know how to get this figure from 15 years ago or who to ask.[/FONT]
[FONT=&quot]The property has sold for under £100,000. Obviously, we want to pay as little tax as we can. We had plans for the whole amount but lesson learnt![/FONT]

G_M

Iiyama wrote: »

[FONT=&quot]
[/FONT]
[FONT=&quot].....the transfer 15 years ago does not have a value of the property on it. I don’t know how to get this figure from 15 years ago or who to ask.[/FONT]

You pay an RICS surveyor for a back-dated valuation. As00ec25 said above, if HMRC query the figure you provide, you can then forward the surveyor's written Valuation to them.

SmashedAvacado

Your wife could gift you half the house before you sell it which might give you the possibility of using both of your CGT allowances. This gifting can take place immediately before the sale - Might be worth checking this point, but it could save you £12k of tax - but I believe this can be possible.

Iiyama

Such a helpful lot I’ll ask a related question…
In our naïve thinking we thought we would face a tax bill of tens of thousands! I’ve found a CGT calculator and input the following broad figures. Does this look right?


Wife’s income from April 2019 includes NHS pension £1600 per month and a short piece of retire return work at the end of September 2019. I calculate would come to a total income of £27000 to March 2020.


The property transferred to her name 15 years ago would be worth approx. £45000 then although possible less and I need to get a correct calculation from a surveyor.


Property sells for £93000 due to complete in two weeks (I hope)
Minus estate agent and solicitor fees on the sale £2000


Costs of improvements on house £5000 this year.


The CGT calculator estimates £8620 tax due.


I know this is a rough calculator and she may need to see an accountant but my question given these rough figures does this look correct? We thought the CGT bill would be tens of thousands.

SmashedAvacado

CGT is tax on profit after deductions (as set out in the tex manual). You pay that tax subject to the annual allowances.

Costs you can claim is all capital expenditure (ie not maintenance (ie you can't claim like for like repair but you can claim for making something better - so some of your improvements but not count if they for example are redecoration ), cost of buying and cost of selling.

00ec25

Iiyama wrote: »

Costs of improvements on house £5000 this year.

The CGT calculator estimates £8620 tax due. that looks wrong

given the lack of knowledge shown in your first post I very much doubt you have yet understood what is meant by "improvement"

whilst 5K on a 93K house is a large %, it also is not too big to be simply repairs, redecoration, and "refurbishment" - none of which create a new "something" that was not there before, and so are not capital costs

if it helps, going on the rest of your figures:
gain 93 - 45 - 2k costs = 46,000 gross gain

46 - 12,000 personal allowance (*) = 34,000 taxable net gain

total "income" for the year 27,000 + 34,000 = 61,000
higher rate tax bracket for 19/20 is 50,000

so
CGT @ 18% 50-27 = 23,000 @ 18% = 4,140
CGT @ 28% = 61-50 = 11,000 @ 28% = 3,080

total CGT payable = 7,220

* Note the idea that your wife can gift you a share immediately before selling is extremely risky as when / if the HMRC computer spots that, the transfer will be disallowed under settlements legislation as its only purpose was to avoid tax. She would have had to made you an owner long before sale, and ideally whilst you and her would then end up splitting the rental income as well, to evidence the split was not done purely with an eye on selling