CGT question on inherited family home.

SilverSam4_0

Hi everyone,

I have a question regarding Capital Gains Tax.

About 30 years ago I inherited a 50% share of our family home (the other 50% inherited by my brother). For about ten years we both continued to live there along with our disabled father, however for various reasons we both needed to move out/abroad. At this point we both agreed to have our disabled father live in the property, rent-free for as long he was alive (no part of the house was let for a lodger etc while he lived there). However, around 2010 he became more unwell and I would come back to the UK and regularly go and live with him for 3-6mnths at a time, until he passed away. This year he passed away and my brother and I are looking to do some redecorating etc and put the house for rent.

My question is; if I should want to sell my 50% share (perhaps to my brother) after 2 years how would my CGT be calculated? Would it be from when I inherited the property 30 years ago or perhaps from when my father passed away?

Thank you for reading and any advice will be welcome.

Slithery

The gain is calculated from when you first became the owner, but you only pay CGT proportionally to the amount of time that it wasn't your main residence.

If you can tell us the date that you inherited, the value of the property then and now, and how many months it was your main residence we can work out how much you'll owe.

SilverSam4_0

I assume I inherited when my mother passed away- Aug 1992.
Value then (without formal retrospective valuation) - 50K approx
Value now - 515K

From Aug 1992: it was my main residence for 208 months, 96 of those months I worked abroad(during which I lived with him for regular spells). If I do not include time lived abroad it is 112 months. 

Is there any other information you need it?
Thank you

AdrianC

Whether the "time abroad" counts as being resident in this property depends vastly on how that time was spent, proportions and frequency. It is unlikely to count, since you would have been primarily resident in the other country.

But 1992 to 2021 = 29 years = 348 months.
112 months plus nine months transition relief is ~35% of the time, so you would pay CGT on 65% of the £465k gain, less an annual CGT allowance of £12,300 gain.
If you're a standard rate taxpayer, it's 18%, so about £52k tax.

Slithery

AdrianC said:

Whether the "time abroad" counts as being resident in this property depends vastly on how that time was spent, proportions and frequency. It is unlikely to count, since you would have been primarily resident in the other country.

But 1992 to 2021 = 29 years = 348 months.
112 months plus nine months transition relief is ~35% of the time, so you would pay CGT on 65% of the £465k gain, less an annual CGT allowance of £12,300 gain.
If you're a standard rate taxpayer, it's 18%, so about £52k tax.

OP only has a 50% share, so around £25k.

AdrianC

Slithery said:

AdrianC said:

Whether the "time abroad" counts as being resident in this property depends vastly on how that time was spent, proportions and frequency. It is unlikely to count, since you would have been primarily resident in the other country.

But 1992 to 2021 = 29 years = 348 months.
112 months plus nine months transition relief is ~35% of the time, so you would pay CGT on 65% of the £465k gain, less an annual CGT allowance of £12,300 gain.
If you're a standard rate taxpayer, it's 18%, so about £52k tax.

OP only has a 50% share, so around £25k.

You are, of course, correct.

SilverSam4_0

Thank you, that is really helpful.  

A couple of questions:
1. As I currently own 50% share would I pay CGT on 65% of half of £465k, less annual CGT allowance of £12,300?          i.e. £465k/2=£232,500
£232,500  -£12,300=£220,000
£220,000 x 0.65=£143,130
£143,130 x 0.18= £25,760.

2. If I reduced my share to 10% prior to renting the house by selling 40% of my share to my brother what tax and how much would I have to pay on that sale. Secondly, when I sell the remaining 10% to my brother after approx. 2 years of renting out the house, how would the tax due be calculated.

I really appreciate your input, thank you so much.

AdrianC

SilverSam4_0 said:

A couple of questions:
1. As I currently own 50% share would I pay CGT on 65% of half of £465k, less annual CGT allowance of £12,300?          i.e. £465k/2=£232,500
£232,500  -£12,300=£220,000
£220,000 x 0.65=£143,130
£143,130 x 0.18= £25,760.

Almost.

You get 100% of your £12,300...

So...
£465k/2 = £232.5k capital gain over the entire ownership
65% x £232.5k = £151,125 capital gain for the portion of time you were not resident
£151,125 - £12,300 = £138,825 taxable capital gain after allowance
£138,825 x 18% = £24,500 tax

2. If I reduced my share to 10% prior to renting the house by selling 40% of my share to my brother what tax and how much would I have to pay on that sale. Secondly, when I sell the remaining 10% to my brother after approx. 2 years of renting out the house, how would the tax due be calculated.

I really appreciate your input, thank you so much.

You would pay the tax on the proportion you were disposing of at the value on the date of disposal.

So for the 40%, it would be 40% of today's value, rather than 50% if you sold it all now.
For the 10%, it would be 10% of the value at the time of disposal.
All calculated against the value at the time of acquisition, and the period between then and disposal.
The £12,300 is for all your taxable CGs in that tax year - so if you sell the 10% after next April, you get two allowances, one for each year. But if you also sell some shares or whatever this year, you only get one £12,300 for the tax year, not per disposition.

Of course, we have no way of knowing what'll happen to CGT in future budgets.

SilverSam4_0

This is so so helpful, thank you. Very interesting to note that there is one CG allowance per year.
In theory, could I sell 30% this year, 10% after next April and the last 10% the following year? 

e.g £465k x 30% = £139.5k
65% x £139.5k = £90.675k
£90.675k - £12,300 = £78.375k
£78,375 x 18% = £14,107.5 tax due on 30%

and

£465k x 10% = £46.5k
65% x £46.5k = £30.225k
£30.225k - £12,300 = £17.925k
£17.925k x 18% = £3,226.5 tax due on 10%
 
and then the remaining 10% the following year, so I pay £14,107.5 + £3,226.5 + £3,226.5 = £20,560.5 tax due in total over three years. If this is correct there would be a saving of £24,500 - £20,560.5 = £3,939.5. ( assuming CGT rules don't change in future budgets).

If I were to do the above and for the first year keep 20% of the property, I would receive 20% of the rental income and for the following year 10% share of house with 10% rental income. What tax would be due on that income?

AdrianC

SilverSam4_0 said:

This is so so helpful, thank you. Very interesting to note that there is one CG allowance per year.
In theory, could I sell 30% this year, 10% after next April and the last 10% the following year?

Yes.

If I were to do the above and for the first year keep 20% of the property, I would receive 20% of the rental income and for the following year 10% share of house with 10% rental income. What tax would be due on that income?

It's taxed as income, on top of whatever other income you earn in the year.

You need to do a self-assessment tax return for anything more than basic PAYE, of course, and you just declare it on that.

getmore4less

SilverSam4_0 said:

I assume I inherited when my mother passed away- Aug 1992.
Value then (without formal retrospective valuation) - 50K approx
Value now - 515K

From Aug 1992: it was my main residence for 208 months, 96 of those months I worked abroad(during which I lived with him for regular spells). If I do not include time lived abroad it is 112 months. 

Is there any other information you need it?
Thank you

The first thing to check is did you inherit absolutely or was there a life interest(the right to live in the property) for your father.


it changes the tax status significantly