Calculating CGT on second home

Blueeyes43

Hello

My father (widowed since Nov 2014) is now selling his second property that he owned with my Mum since 1990. The property was bought for £92,000 and is now under offer at £635,000.  It was let out over the years since 1991 and self assessments completed every year. It has been vacant since June 2018 while trying to sell it. No major adaptations done over the years and they never lived in the property.  My Mum never had a will so everything just passed to my Dad. So no probate was undertaken on her death. 

Please can someone give us an idea of the CGT bill that my father will have to pay?  This is a minefield to me as I don’t know can allowances of my Mum’s be taken into account right up until she passed away?

Please also let me know do we need to get a retrospective valuation on the property? Back six years ago when my Mum passed away the property would have been worth roughly £200k more but because the market has deteriorated in London and it is in need of renovation it has dropped in value considerably.
Many thanks in advance

Jeremy535897

Given the amounts involved, I suggest he asks a RICS valuer to give a formal valuation of your mother's interest in the property at the date of her death. The capital gain for father will be calculated as follows:

Sale proceeds, less costs of sale (legal and estate agent etc), less the value of mother's interest at the date of her death, less what father paid for his share in 1990, less his share of the costs of acquisition in 1990 (legal fees, stamp duty etc), less any capital losses he has in the year, less any unused part of his annual CGT exemption of £12,300, less any capital losses he has brought forward from previous years. If he paid for any improvements, these could be deducted, but it sounds like there weren't any.

The capital gain will need to be reported, and the tax paid, within 30 days of completion. See:
https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

pphillips

You mum isn't liable for CGT and therefore doesn't get a personal allowance. However, her death causes an automatic CGT-free revaluation of her assets. So my understanding is that you'll need a retrospective valuation from Nov 2014 for the notional half share that passed to your father on your mother's death. Your father's CGT liablilty would therefore be for one half from 1990 and the other half from Nov 2014. There may be other reliefs your father can claim and may wish to get professional advice from an accountant or look to HMRC for guidance.

Blueeyes43

Thank you sorry for being so clueless over this.

Costs of current sale are £10000, my mother’s interest (is that 50% of £800,000 rough estimate from Nov 2014) so £400,000, my father paid £46,500 in 1990 for his share, £3000 for legal costs at that time, stamp duty etc, it hasn’t been let out since June 2018, there were losses from previous years (I’d have to get them off the accountant, can we say £40,000 for arguments sake), No big improvements as such. Please can you work out the CGT based on those figures?

TBH I’ve lost faith in the family accountant of 40 years and not sure he has always advised my parents in the best tax efficient way.  If I could have a rough CGT figure from someone it would make me feel a lot more confident in how the CGT is worked out.

Thank you and once again sorry for being so clueless about this.

Jeremy535897

Sale proceeds £635,000 less costs of sale £10,000 less mother's interest at date of her death £400,000 less cost of father's share £46,500, less £3,000 costs of acquisition (if this is his share, otherwise half), less £12,300 annual exemption (assume not used elsewhere), less £40,000 losses (assuming these are all father's) brought forward = £123,200 at 28% (assuming father is a 40% taxpayer) = tax of £34,496.

pphillips

Jeremy535897 said:

Sale proceeds £635,000 less costs of sale £10,000 less mother's interest at date of her death £400,000 less cost of father's share £46,500, less £3,000 costs of acquisition (if this is his share, otherwise half), less £12,300 annual exemption (assume not used elsewhere), less £40,000 losses (assuming these are all father's) brought forward = £123,200 at 28% (assuming father is a 40% taxpayer) = tax of £34,496.

Or at 18% if father is basic rate taxpayer = £22,176
Although CGT acts as a top layer of income tax, so potentially the taxable gain could split across both CGT tax rates.

Jeremy535897

pphillips said:

Jeremy535897 said:

Sale proceeds £635,000 less costs of sale £10,000 less mother's interest at date of her death £400,000 less cost of father's share £46,500, less £3,000 costs of acquisition (if this is his share, otherwise half), less £12,300 annual exemption (assume not used elsewhere), less £40,000 losses (assuming these are all father's) brought forward = £123,200 at 28% (assuming father is a 40% taxpayer) = tax of £34,496.

Or at 18% if father is basic rate taxpayer = £22,176
Although CGT acts as a top layer of income tax, so potentially the taxable gain could split across both CGT tax rates.

It is unlikely to be £22,176, as the taxable gain exceeds the basic rate band by a very substantial amount, unless there are large pension contributions and/or gift aid payments..

oldbikebloke

pphillips said:

Or at 18% if father is basic rate taxpayer = £22,176
Although CGT acts as a top layer of income tax, so potentially the taxable gain could split across both CGT tax rates.

it is impossible for it all to be 18% as the gain is more than the basic rate band to start with, as you said yourself, the gain is a "top slice" on top of any other taxable income and we assume there must some other income so with a >100k net taxable gain, most of it will be at 28%

pphillips

oldbikebloke said:

pphillips said:

Or at 18% if father is basic rate taxpayer = £22,176
Although CGT acts as a top layer of income tax, so potentially the taxable gain could split across both CGT tax rates.

it is impossible for it all to be 18% as the gain is more than the basic rate band to start with, as you said yourself, the gain is a "top slice" on top of any other taxable income and we assume there must some other income so with a >100k net taxable gain, most of it will be at 28%

Yes I realise that now, thank you both for pointing it out.

Blueeyes43

Thank you for your responses. My father is a lower tax payer. He is 72, no pension contributions, no gift aid, no other savings. He receives a weekly pension of £175 which is the government pension plus some of my late mother’s pension. So basically does this mean that anything over the lower threshold he will have to pay 28%? 

Thank you.

Jeremy535897

Blueeyes43 said:

Thank you for your responses. My father is a lower tax payer. He is 72, no pension contributions, no gift aid, no other savings. He receives a weekly pension of £175 which is the government pension plus some of my late mother’s pension. So basically does this mean that anything over the lower threshold he will have to pay 28%? 

Thank you.

Yes. See https://www.gov.uk/capital-gains-tax/rates