Capital Gains Tax on Sale of Inherited Property - Help Please.

johnfella

My wife inherted her mother's house back in 1999 and it was valued at £100,000. She rented it out until March 2019 and eventually sold it in August 2019 for £262,500 with sale expenses of £4,500. Apart from about £400 in interest she had no other income for 2019-2020. The income tax form doesn't ask when the house was inherited. Is this now irrelevant? It looks like her CGT liability will be around £37,500 - is this correct? Any advice would be much appreciated! Thank you in anticipation.

greatcrested

Capital gain is 262,500 - 100,000 = 162,500 - 4,500 = 158,000.

Annual allowance is 12,300 so taxable gain is £145,700 (assuming not used elsewhere)

As a basic rate tax payer, tax is 18% so £26,226.

Income tax form is irrelevant - this is capital gains tax. Report it here:

https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

(check my figures I'm not a mathematician...)

calculator here

https://www.charcol.co.uk/mortgage-calculators/capital-gains-tax-calculator/

SuperHan

Not quite what greatcrested said - she will pay 18% up to the basic rate limit of £50k. For rate remaining £95,700 of gain, it will be at 28%.
This gives a gain of around £37k. This will need to be reported and paid within 30 days of sale. 
Date of inheritance is irrelevant - it's the value at that date and the sales value that are relevant. 

oldbikebloke

the lack of income in 19/20 is only relevant in so far as she does not "lose" any of the basic rate CGT tax band (the first 37,500 of her gain)
so as super han says, the CGT payable will be based on the net taxable gain gain £145,700 of which 37,500 is payable at 18% (£6,750) and the remaining 95,700 payable at 28% (£30,296)
so total CGT to pay 37,046

because she sold it back in Aug 19 she falls under the old rules and therefore is allowed to report the sale, and pay the tax, as part of her 19/20 tax return using the separate capital gains tax pages. Note I know you say she had no income in 19/20, but she will still need to complete an entire income tax return so income pages plus CGT pages. The return is of course due by 31 Jan 2021 at the latest.

Just be aware that a 1999 valuation of £100,000 is a convenient round sum, so what evidence does she have to support that figure? Assuming that no inheritance tax was physically paid by mother in law's estate, then HMRC have not yet accepted that value and will now will take advice of their own as to what they think the property was worth in 1999. that may, or may not impact your calculation. 

Given the sums involved and the fact she has a lot of time still to go before jan 21, she would be well advised to submit a Form CG34 to ask HMRC to review the value and agree it before she submits her tax return in case she gets a nasty surprise if they revise it and she has underpaid her tax as a result.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg16603
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg16606
https://www.gov.uk/government/collections/capital-gains-tax-forms

johnfella

Thank you all for your help! Just got to work out how to fill our tax returns in online now as no more paper copies sent!

johnfella

Just one more question please... Between March 19 when the last tenant vacated the property and August 19 when she eventially got a buyer my wife had to pay Council Tax, Water Rates & Energy Bills (needed power to mow lawn etc). Although she received no rent during this period can she claim these expenses on her tax form? Thank you.