Retrospective valuation working out CGT

Blueeyes43

Hi
When my mother passed away in 2014 we should have got a valuation of her and my Dad's buy to let property and the family home. Fast forward 6 years to the sale of the buy to let and the CGT needs to be paid. Our accountant worked this out to be £140000 based on property sale of £635000. She has since informed me that this figure may reduce if i can get the retrospective red book valuation and if my Mum's value would be more than she paid when initially buying the property with my Dad, ie they paid £50000 each, were joint tenants. If the retrospective valuation is £575,000 please can someone show me how to work out the revised CGT. Judging by other properties sold in same rd and similar comparables this seems to be a conservative estimate, obviously to be confirmed by the surveyor. If someone could show me how the accountant would work this out please i'd really appreciate it. Its a lot of CGT to pay and i'm thinking once its paid within the next 30 days its got to be right and any queries raised beforehand.
Thank you

[Deleted User]

Personally I would obtain a formal valuation of the property at the time of your mother’s death from an independent valuer. I am not sure, from your post, whether your father is still alive and if your mum owned half or all of the property at the time of her death. Was there a probate value?

Anyway, on what you have asked, the gain would be £635000 - 575000 = 60000. From this you can deduct your CGT allowance of 12300 to leave 47700 chargeable. (Cost of any improvements can also be deducted) 

This is added to your other taxable income to determine how much of the 47700 is charged at 18% or 28%. Have a look at this for further information on this.

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

Thrugelmir

A RICS surveyor can perform this for you. Will write a report substantiating their opinion. Which provides something for the HMRC. 

Blueeyes43

Thank you for responding.  My father is still alive and yes the property was bought jointly between the two of them.  No probate value as no will, everything just passed to my Dad on my Mum’s passing. There were no improvements to the property and my Dad’s income is £175 per week. So I guess in any event getting the formal retrospect valuation from a RICs surveyor will most definitely be worth it for the big saving in CGT. Thank you.

oldbikebloke

so joint tenants for the entire ownership period of the BTL. Sold for 635,000
Mother:
Owned 50% share that passed to father at date of her death at the market value at that date in 2014
Father: 
Obviously he has sold 100% of the property but needs to account for CGT on what are effectively the 2 separate portions he sold:
a) acquired original 50% at cost 50,000. Gain on that portion: 635 x 50% = 317,500 less cost 50,000 = 267,500 gross gain 
b) acquired remaining 50% at market value on 2014's date of death (575,000 x 50%) = 287,500. Gain on that portion 635 x 50% = 317,500 less cost 287,500 = 30,000
Total gross gain 267.5 + 30 = 297,500 less CGT allowance 12,300 = net taxable gain 285,200

Taking as read father's income is "small" (ie less than 12,500 per year) and therefore he pays zero income tax, that means all of the basic rate tax band remains available to apply at the lower CGT rate, meaning the CGT payable would be:
first 37,500 of net gain @ 18% = £6,750
remainder of gain (285,200 - 37,500) = 247,700 @ 28% = £69,356
Total tax payable: £76,106


Take note
No inheritance tax appears to have been paid when mother died, therefore HMRC have not accepted the value at date of death yet. They will do so as part of the CGT submission. You are very correct therefore that the value you use MUST be robust and needs to come from a professional/credible source who moreover is willing and able to represent you if HMRC challenge it. HMRC routinely get the Valuation Office Agency to review such valuations, and HMRC will use whatever the VOA says, not what you say. Your objective therefore is to submit a figure the VOA agrees with.
The start is to pay a chartered surveyor who holds the RICS valuer registration as that is "the red book" 
There are 2 ways to find such surveyor:
a) find a firm from the link at bottom of this page
https://www.ricsfirms.com/accreditations
or 
b) there will be surveyors who do not work for large firms and who thus may (but not will) be slightly cheaper or give a more personal service. Search for individual members by location ("town") having ticked the registered valuer accreditation box on the left hand menu here to get relevantly filtered results : 
https://www.rics.org/uk/find-a-member/?link=bottom-nav
Obviously many members will work for firms, so b)'s results will overlap with a)'s 




PS 
I hope your accountant has not seriously suggested that you run with their 140,000 tax figure as it is inconceivable that "you" would submit a tax return knowing full well 50% of the gain arises from 2014 onwards only.

In approximate terms, I assume the accountant's "£140,000" calculation was (again assuming father pays no income tax):
Selling price 635 less original cost (father 50, mother 50) 100 = 535 gross gain
less PA 12.3 = 522,700 taxable gain
37.5 @ 18% = 6,750
485.2@28% = 135,856
total tax £142,606

Therefore as you can see, the "correct" 2 part calculation gives a very different outcome.
Also it is not clear if the 635 selling price is net of any selling costs (Estate Agent and legal fees). If not, then those can be deducted when working out the gross gain, as could any legal fees paid by father (but not mother's share of them) when purchasing - if father still has paperwork to evidence those bills if challenged to prove it.....?

oldbikebloke

[Deleted User] said:

Personally I would obtain a formal valuation of the property at the time of your mother’s death from an independent valuer. I am not sure, from your post, whether your father is still alive and if your mum owned half or all of the property at the time of her death. Was there a probate value?

Anyway, on what you have asked, the gain would be £635000 - 575000 = 60000. From this you can deduct your CGT allowance of 12300 to leave 47700 chargeable. (Cost of any improvements can also be deducted) 

This is added to your other taxable income to determine how much of the 47700 is charged at 18% or 28%. Have a look at this for further information on this.

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

I think you were having a bit of a senior moment here purdy - the father already owned 50% of what he sold, so you cannot use all of the market value as you have done

Jeremy535897

Haven't we been here before?
https://forums.moneysavingexpert.com/discussion/6194111/calculating-cgt-on-second-home#latest

[Deleted User]

oldbikebloke said:

purdyoaten2 said:

Personally I would obtain a formal valuation of the property at the time of your mother’s death from an independent valuer. I am not sure, from your post, whether your father is still alive and if your mum owned half or all of the property at the time of her death. Was there a probate value?

Anyway, on what you have asked, the gain would be £635000 - 575000 = 60000. From this you can deduct your CGT allowance of 12300 to leave 47700 chargeable. (Cost of any improvements can also be deducted) 

This is added to your other taxable income to determine how much of the 47700 is charged at 18% or 28%. Have a look at this for further information on this.

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

I think you were having a bit of a senior moment here purdy - the father already owned 50% of what he sold, so you cannot use all of the market value as you have done

I am well capable of that. However it really was not clear to me whether or not Dad was still alive from the first post - this is now clarified. There is no mention of who is actually selling the property, certainly not that it was Dad. Accordingly it appeared more than possible that the situation was that the op, not Dad, was selling a property inherited at Mum’s death which was solely owned by Mum as a result of Dad’s death. While this does not make the calculation any more correct, and in the absence of any clarification  I simply provided the tax calculation on the 635000 proceeds less 575000 ‘cost’ as asked by the op. I did say ‘anyway, on what you have asked’ 😊 We seem to have got there now though.

Blueeyes43

oldbikebloke said:

so joint tenants for the entire ownership period of the BTL. Sold for 635,000
Mother:
Owned 50% share that passed to father at date of her death at the market value at that date in 2014
Father: 
Obviously he has sold 100% of the property but needs to account for CGT on what are effectively the 2 separate portions he sold:
a) acquired original 50% at cost 50,000. Gain on that portion: 635 x 50% = 317,500 less cost 50,000 = 267,500 gross gain 
b) acquired remaining 50% at market value on 2014's date of death (575,000 x 50%) = 287,500. Gain on that portion 635 x 50% = 317,500 less cost 287,500 = 30,000
Total gross gain 267.5 + 30 = 297,500 less CGT allowance 12,300 = net taxable gain 285,200

Taking as read father's income is "small" (ie less than 12,500 per year) and therefore he pays zero income tax, that means all of the basic rate tax band remains available to apply at the lower CGT rate, meaning the CGT payable would be:
first 37,500 of net gain @ 18% = £6,750
remainder of gain (285,200 - 37,500) = 247,700 @ 28% = £69,356
Total tax payable: £76,106


Take note
No inheritance tax appears to have been paid when mother died, therefore HMRC have not accepted the value at date of death yet. They will do so as part of the CGT submission. You are very correct therefore that the value you use MUST be robust and needs to come from a professional/credible source who moreover is willing and able to represent you if HMRC challenge it. HMRC routinely get the Valuation Office Agency to review such valuations, and HMRC will use whatever the VOA says, not what you say. Your objective therefore is to submit a figure the VOA agrees with.
The start is to pay a chartered surveyor who holds the RICS valuer registration as that is "the red book" 
There are 2 ways to find such surveyor:
a) find a firm from the link at bottom of this page
https://www.ricsfirms.com/accreditations
or 
b) there will be surveyors who do not work for large firms and who thus may (but not will) be slightly cheaper or give a more personal service. Search for individual members by location ("town") having ticked the registered valuer accreditation box on the left hand menu here to get relevantly filtered results : 
https://www.rics.org/uk/find-a-member/?link=bottom-nav
Obviously many members will work for firms, so b)'s results will overlap with a)'s 




PS 
I hope your accountant has not seriously suggested that you run with their 140,000 tax figure as it is inconceivable that "you" would submit a tax return knowing full well 50% of the gain arises from 2014 onwards only.

In approximate terms, I assume the accountant's "£140,000" calculation was (again assuming father pays no income tax):
Selling price 635 less original cost (father 50, mother 50) 100 = 535 gross gain
less PA 12.3 = 522,700 taxable gain
37.5 @ 18% = 6,750
485.2@28% = 135,856
total tax £142,606

Therefore as you can see, the "correct" 2 part calculation gives a very different outcome.
Also it is not clear if the 635 selling price is net of any selling costs (Estate Agent and legal fees). If not, then those can be deducted when working out the gross gain, as could any legal fees paid by father (but not mother's share of them) when purchasing - if father still has paperwork to evidence those bills if challenged to prove it.....?

Thank you for your responses to my original post. Sorry I haven’t responded until now. We got the red book retrospective valuation today, the property was valued at £655,000 at the date of my late Mother’s death in 2014. It is my father who is now selling the property, legal fees and estate agent fees amount to roughly £15,000. Going by your calculation above and in lieu of receiving my Dad’s accountant’s revised CGT calculation, if you don’t mind I’d be ever so grateful if you could work out the CGT for us.  I have tried to do it myself but not sure I am on the right track. I had thought the value of the property may have been around £575000 in 2014 but the valuation has come in at £655000 which is a lot more.  We’re really concerned about the previous figure our accountant gave us, not taking into account my Mother’s share until 2014 and it would be really helpful to have a figure in our heads...and to see whether it does actually tie in with his figure.  Thank you in anticipation.

oldbikebloke

Blueeyes43 said:
I’d be ever so grateful if you could work out the CGT for us.  I have tried to do it myself but not sure I am on the right track. 

really?
replace 575 with 655
the mechanics of the calculation have not changed 

Blueeyes43

oldbikebloke said:

Blueeyes43 said:
I’d be ever so grateful if you could work out the CGT for us.  I have tried to do it myself but not sure I am on the right track. 

really?
replace 575 with 655
the mechanics of the calculation have not changed 

Hi, I’m getting £64906. I think it’s thrown me because the retrospective valuation is more than the sale price now, whereas the previous calculation was based on a lower retrospective. Sorry maths wasn’t my strong point.