Question about Capital Gains Tax

Growlybear

Although I'm fairly sure that CGT will be payable on a property sale, given the unusual circumstances, I would very much welcome any views on our situation. 

My husband was the sole beneficiary from his father's estate when he died in 1990, which was below the Inheritance Tax threshold.  He inherited a leasehold ex local authority flat, which was the only real asset, and allowed his mother (his parents were divorced many years earlier) to live in the flat rent free for 30 years until she moved into sheltered accommodation at the end of last year.    

My husband is now planning to sell the flat, which has obviously increased in value since he inherited it, which I assume means he is liable to pay CGT.  However, if he had sold the flat when he originally inherited it, he wouldn't have paid CGT - does the fact that he has never earned any income from the flat since he inherited it have any bearing on his liability for CGT when the flat is sold? 

[Deleted User]

Unfortunately that would make no difference at all. 

Growlybear

That's what I suspected but thank you for replying!

Mickey666

If he had earned income from the flat them he would have been liable for income tax.

Given the flat has increased in value (and it has not been his main residence and cannot therefore claim PRR) then he will be liable for tax on that increase, ie a capital gain, so CGT.

Technically, he would have been liable for CGT anytime after inheriting it - the time does not really matter.  Of course, on the day he inherited it there would have been no time for any capital gain, so the CGT calculation would have ended up as zero, but it's still a technical liability so ANYTIME he sells it for more than the inherited value there will be a CGT liability to calculate.

The good news is that he has an annual CGT allowance of around £12,300 plus the calculation doesn't apply to any selling costs  (ie EA fees, solicitor fees etc) because they will reduce his actual capital gain.

If the house was in your joint names then you would BOTH have £12,300 CGT allowance.  There is no tax liability on gifts between spouses so it would be possible for your husband to transfer 50% ownership to you, but I don't know the CGT implications because it might be deemed to be a tax avoidance exercise and such things are generally disallowed . . . . but that's all a bit murky and beyond me.  If such had already been done for other reasons then it would almost certainly be fine, but if it done a few weeks before putting the flat up for sale then it might not be allowed for CGT purposes - but I don't know for sure, so you'd need some proper tax advice on that one.

The rules for calculating liability are at: https://www.gov.uk/tax-sell-property

It's a pity he did not acquire the property before 1988 because there was some CGT relief for providing a property for a dependent relative, for which his Mother would certainly have qualified.  Oh well, times change.  The good news is that CGT is a GAINS tax, which means whatever he ends up paying, he'll still be better off than if he hadn't inherited the flat at all.

[Deleted User]

The DR relief had occurred to me but, as you say, mother didn’t move in before 5th April 1988.

The placing of a property into joint names before selling has been covered relentlessly on here, not least by me. By all means do so but leave enough time before sale to at least make a reasonable case that this was not done simply to avoid CGT. 

There have been instances on this forum were the purchasers are on the cusp of acquiring the keys and the idea of placing the property into joints names suddenly surfaces.