Capital Gains Tax 13 July 2020 at 12:41PM in Cutting Tax 9 replies 241 views

Laineyrose

Mum gifted her bungalow to myself and brother in 1997 so we were 'tenants in common'.  I lived in another property, but moved into mum's property in 2016 as she needed caring for and she eventually went into a home, but unfortunately died last year.  I have sorted out my capital gains tax with reference to my other property as sale was completed recently.  I was not liable for CGT at the property I now live in as this is my main home.  I will need to complete a TR1 form to take my brother's name off the deeds and will give him half the value of the property to buy him out.  However, we are unsure how my brother's CGT should be evaluated - does he just pay CGT for the total money received or is it worked out in a different way as it is payment for his share of the property?

Jeremy535897

I assume that you continue to live in the property gifted to you and your brother? The simple answer to your question is that your brother will be liable to capital gains tax on the difference between the value of half the property at the date it is transferred to you, and the value of half of the property at the date of gift in 1997, less any annual exemption available. The tax will be due 30 days after completion under the new rules for disposals after 5 April 2020. There will also be stamp duty land tax payable, although the temporary increase in the base level for SDLT may help. If your mother had any right to continue to live in the property after the gift, there may have been a settlement, which would change things.

What was the logic for the gift in 1997? It would have been a deprivation of assets for benefit legislation. It stopped the CGT free uplift on your mother's death, but the house would have remained in her estate for inheritance tax purposes as a gift with reservation. There would have been a potentially exempt transfer on her moving out, but that was within seven years of her death. What was her estate worth? If she had a life interest in a settlement, that changes all the analysis.

Pennywise

Laineyrose said: I have sorted out my capital gains tax with reference to my other property as sale was completed recently.  I was not liable for CGT at the property I now live in as this is my main home.  

I don't understand that bit.  Aren't you currently living in your mother's house?  You wouldn't get full main residence relief on your previous "home" if you'd moved out for the last few years and moved into your mother's house.
You'll also have a potential CGT liability on the eventual sale of your mothers house which you now live in as it wasn't your "main residence" for the 20 years when you weren't living in it and were living elsewhere.
You can only have one "main residence" at a time.  There are now very limited allowances for cross-over periods (basically just last 9 months of ownership).

Laineyrose

Mum gifted the property in 1997 when my dad died with proviso Mum would live in the property until her death. I moved into the property in 2016 as it was too difficult for me to drive up and down the motorways as I lived in Plymouth which is 330 miles away. Mum needed a lot more care and then went into a care home. I saw an accountant a few years ago to make my mums property my main residence.  I therefore paid CGT on sale of my house in Plymouth. Trying to find out what the value of my mums property was worth in 1997 is proving impossible, as like you say my brother would pay difference for CGT on half the value in 1997 and half of what it is worth today. When you say CGT for my brother would be due in 30 days (sale of my property was completed 02 07 2020) would he still have to pay 30 days from this date or when I transfer half the value of my mum’s property?

Jeremy535897

I am confused. Why would the sale of the property in Plymouth that you used to live in before moving in with your mother have anything to do with your brother? You will have to pay CGT on your Plymouth house within 30 days of completion. Your brother will have to pay CGT on the sale of his half of the house that was your mother's and you live in now to you, and CGT will be due within 30 days of completion of that sale.

A valuer (talk to an estate agent as they often employ qualified valuers) will be able to give you a value today and in 1997. It is possible that a value was carried out in 1997 for probate, but unlikely.

There are still the inheritance tax issues, as well as whether the arrangement that your mother could live in the property until her death were sufficient to create a life interest settlement for her, which may affect the capital gains tax position. Was there a deed of variation of your father's estate?

Laineyrose

Thank you for your comments. I think my brother will have to get a solicitor to sort this all out as it does seem complicated.  I am using the money I made from my property in Plymouth to pay off my brothers share of my mums house, so I will complete a TR1 form to take my brothers name off the deeds once I’ve paid him his share of the property. The issue for my brother is that he still needs to sort out with regards CGT re. the amount I give him. I have already sorted CGT with regards my Plymouth property because this was classed as my second home.

Keep_pedalling

As this was this was a Gift with Reservation of Benefit was the value of the house declared on her IHT forms?

For historic valuation you should employ a RICS surveyor. 

Laineyrose

Thank you for your comment.  I will have a look at all my mums paperwork and check to see if there is any IHT form.

Keep_pedalling

Laineyrose said:

Thank you for your comment.  I will have a look at all my mums paperwork and check to see if there is any IHT form.

Who was her executor?

Laineyrose

Both my brother and myself were executors