Capital Gains Tax and Property

Anotherwedgy

In 1994 my mother-in-law purchased a property from the local authority on a Right to Buy scheme. She paid £11000 after discount; the value was assessed at £36000. In 2003 she sold the property to my wife and I and brother and his wife, equally. We simply paid my mother-in-law an amount that paid off her outstanding 'interest only' mortgage of £11000 but the property was probably worth around £65000. The property has just sold for £138000. On the HMRC calculator for CGT the question is posed 'Did you buy the property for less than it was worth because the seller wanted  to help you?'. In this case, the answer is yes. The sale to the family members provided an investment for the future and allowed my mother-in-law to live rent free for the rest of her life. Sadly, she passed away recently, hence the sale. So, when calculating CGT, is the start point the amount that we actually paid or the value of the property at the time of our purchase. If its the former, what is the purpose of this question?

Pennywise

When it's a sale/purchase between connected persons, i.e. family, CGT is always on market value, not the price paid.  

Anotherwedgy

Many thanks for this response. That will be good news as applying the higher 'value' rather than the actual amount paid will reduce our liability.

Jeremy535897

The house would still have been included in her estate for inheritance tax purposes, because she reserved a benefit (living there rent free). By selling it to the family at an undervalue, instead of leaving it to them in her will, all that seems to have been achieved is the creation of a possible capital gains tax liability.

[Deleted User]

Jeremy535897 said:

The house would still have been included in her estate for inheritance tax purposes, because she reserved a benefit (living there rent free). By selling it to the family at an undervalue, instead of leaving it to them in her will, all that seems to have been achieved is the creation of a possible capital gains tax liability.

Exactly. Hindsight is wonderful but it would have been infinitely better to have paid off the mortgage of 11000 and not have had the house transferred at all.

p00hsticks

Anotherwedgy said:

Many thanks for this response. That will be good news as applying the higher 'value' rather than the actual amount paid will reduce our liability.

It sounds like your mother should have paid CGT based on the market value when selling it to you in 2003, but presumably this never happened....

[Deleted User]

p00hsticks said:

Anotherwedgy said:

Many thanks for this response. That will be good news as applying the higher 'value' rather than the actual amount paid will reduce our liability.

It sounds like your mother should have paid CGT based on the market value when selling it to you in 2003, but presumably this never happened....

it appears that she lived in it from purchase until she passed away.

Anotherwedgy

Thanks for all responses. The hindsight view is interesting but there were other reasons for transferring the title in 2003. It's the current situation that we have to deal with. And, yes, she lived in property until her passing away.