Capital gains tax calculation enquiry

masjntt1977

Hi

Can anyone help my mom with this CGT query please ?

She purchased a house jointly in Jan 2012 with my dad . My dad became ill and developed mobility problems and they were never able to move into the property.

My dad died in 2016 and my mom inherited his 50% share of the property.

My mom would like to sell this property and realises that capital gains tax will most likely be payable 

Her question is regarding how she calculates the expenses that she is allowed to deduct from any gain she makes.

The expenses we believe she can offset are for :-

Conservatory £8600

Landscape Garden £4760

Solicitor fees £2525

Valuation £213

Total £16098

However these were joint expenses (my mom & dad) incurred prior to his death. We would like to know if she is allowed to offset 100% of these expenses or just 50%?

Thank you to anyone who can advise 😊

oldbikebloke

masjntt1977 said:

Conservatory £8600 - wsee below

Landscape Garden £4760 - see below

Solicitor fees £2525 - is this the total for both buying and selling, or just for selling?

Valuation £213 OK

Total £16098

However these were joint expenses (my mom & dad) incurred prior to his death. We would like to know if she is allowed to offset 100% of these expenses or just 50%?

Thank you to anyone who can advise 😊

valuation fee is straightforward 100% since I assume it relates to mother selling the property which she now 100% owns 

landscaping costs may not be classed as capital costs in all cases. You will need a fully itemised bill listing the nature of work done so it is possible to clearly distinguish between repair/replacement of what was there before or installation of "new" features.
Examples:
patio created from scratch = capital.
New slabs to replace old ones on existing patio = non capital (ie replacement / repair)
Lawn redone = non capital . Lawn size extended = part capital, part repair 

conservatory, solicitor and landscaping - you will also need to clarify when the costs were incurred (ie. before or after father's death?) in order to understand whether they are claimed at 100% or split 50/50

masjntt1977

Thank you for your reply, Costs were incurred before my dad died (valuation, conservatory, solicitor, garden etc)

Garden - was just pebbles upon purchase, was changed to artificial grass with decked area and paved area, have full itemised invoice.

oldbikebloke

masjntt1977 said:

Thank you for your reply, Costs were incurred before my dad died (valuation, conservatory, solicitor, garden etc)
Garden - was just pebbles upon purchase, was changed to artificial grass with decked area and paved area, have full itemised invoice.

sorry not going to faff around using snowflake PC wording
so the valuation of the property for probate purposes included the fact it already had a conservatory and garden works. Therefore fathers 50% of the costs incurred by him to get the property to that state died with him.  

Look at it this way, your question is about reducing your CGT by claiming costs against the gain. The reality is that mother got 50% of the property at a starting price (the probate value) which was already inflated by the "cost" of those works, so she cannot claim those costs again, since her gain is already reduced by the fact the starting price is higher, so the gain since then is smaller. 

Obviously the opposite applies in respect of the 50% that she has owned since the original purchase date in 2012. So the gain on that 50% can indeed be reduced by the costs of capital expenditure and qualifying expenses incurred by her since 2012. However, do remember it is only her share of the costs that she can claim, father's share died with him. Look at it another way, were your father alive, there would be no question that  he would expect to have his share of the gain reduced by his share of the costs, but those are his costs, not your mother's and she cannot inherit them on his death anymore than she could inherit personal liability for any unpaid bills he had. 

Re the garden , I appreciate you see it is £4.7k of spend and therefore think it must be an "improvement", however, my gut reaction to that is it is far from clear, as there is little evidence to support the fact that a bit of Astroturf and wooden decking pays for itself in terms of increased value when selling. In principle, it is no different to spending 5k on a "new" kitchen, the next person who buys will view it as a monstrosity of personal taste, rip it out the minute they can, and replace it with their statement of equally personal taste. Fundamentally no different to painting a wall in pink and saying nice new paint has "improved" the room compared to the shabby white it was before. No, it is simply replacing what was already there, you started with a low maintenance garden of pebbles, you have ended with a low maintenance garden of astroturf  (and decking that needs maintaining more so than pebbles did). It is a very grey area to say that is a capital improvement. Both the turf and the wood are in principle "wasting assets" as they won't last >50 years 
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg15164

In summary 
the CGT calculation has two parts
A) (selling price less 2012 purchase price) x 50% less (conservatory, valuation fees) etc x 50% = net gain part a)

b) (selling price less 2016 probate valuation) x 50% less nothing = net gain part b)

net gain part a) + net gain part b) = total net gain from which deduct CGT personal allowance (£12,000) = mother's net taxable gain for CGT purposes