Inherited a 50% share of a house with my sister. Confused about CGT!

zlorf

Hi there,

My sister is the named executor of my mother's estate, and we both have inherited my an equal share of mother's estate. We have the option of a A) 50% share of my mother's house, or selling the property immediately (through the solicitor) and receiving cash lump sum from the estate. My mum's house is currently valued at £230,000.

I have lived in the property since 2017, paying an agreed upon amount of rent which goes into my mother's estate. My mother was in hospital for that period of time.

If we choose option A), my sister said she can have an agreement drawn up for me to live in the property for the duration of time we co-own it, as I do not currently own any property myself (I rent) and my sister already owns an additional property which she lives in.

I intend to ask her to agree to sell the property with me in about a year's time. She informally agreed to this plan already and we are on very good terms with one another.

My question is: 

1) As I understand it, as my sister already owns a primary home, she will be liable to pay CGT @ 18% basic-rate on any amount generated by the sale of this residential property (over the current £12,300 Capital Gains Tax exemption threshhold). Is this correct? 

2) Lastly, and most importantly for myself, because we are 50% joint-owners of the same property, does that also make me liable for CGT at the point of sale? I ask because even though it would the only property I own, my sister already owns property, and it seems like this could be a more complicated issue. I am concerned the entire sale of the property would be liable for CGT applied @ 18%, and not just "her half". 

Many thanks in advance if you can clarify part of all of that for me. I am trying to work out my best option.

I haven't signed anything yet, by the way!

getmore4less

Any liability for CGT would be covered by the PRR relief for your share  because you live there, sister would not

the base value for any  CGT would be that at DOD of mother and applied to any increase from that not the  full value.

Starting at £230k  if it went up 10% in the year you waited to sell that's £23k  £11.5k each within the allowance.


The rent will need counting for income tax purposes.

you need to decide who is responsible for maintenance.

zlorf

Thank you for responding. 

As I understood PRR, I would not meet the eligibility as I have only been a tenant at the property - and haven't owned it. I would only be eligible for PRR if I lived in a property for 2 out of 5 years of ownership, as I understand it? Are those statements both accurate?

The house was vacant for a period of years when my mother went into a care home, and then I moved in as a tenant in 2017 but my mother was still the legal owner of the property, and she died in September '21 - if that is relevant.

theoretica

Your mother's death and inheritance resets everything, so for CGT it only matters who has lived there as their main home since she passed.

canaldumidi

From your point of becoming a joint owner to the point of sale it will be your main home. No CGT

CGT for your sister will be based on value at time of sale - value at time of mother's death / 2. Less annual personal CG allowance at that time.

TBagpuss

zlorf said:

Thank you for responding. 

As I understood PRR, I would not meet the eligibility as I have only been a tenant at the property - and haven't owned it. I would only be eligible for PRR if I lived in a property for 2 out of 5 years of ownership, as I understand it? Are those statements both accurate?

The house was vacant for a period of years when my mother went into a care home, and then I moved in as a tenant in 2017 but my mother was still the legal owner of the property, and she died in September '21 - if that is relevant.

No. You living in the house before is irrelevant, as you didn't own it.
You became the (joint) owner when your mum died. 

So you acquired the property at that point , at which time it was worth £230,000.

If you sell in 2 years time, then provided you have continued to live in the property, you will have no CGT liability as, for the whole of the time you have owned the house, it will have been your principal private residence.

Your sister may have to pay on the Capital Gain made.

So, if when the house is sold, it sells for £250,000, (say) the total gain is the difference between that and the value when you acquired it.

So, £250,000 - £230,000. The total Gain is £20,000 which you and your sister share, so £10,000 each. 

So your sister's gain would £10,000, but as that is below the annual allowance, assuming she had no other taxable gains in the relevant year, she would not pay anything.

If the house was worth £260,000 when it sold, then the gain would be £30,000, £15,000 each, and so (again, assuming that she had no other taxable gains in the relevant year and that the annual allowance is unchanged) her Taxable Gain would be £15,000 - £12,500 = £2,500, so she would pay tax on that . 18% of £2,500 would be £450.

All that said, it sounds as though the delay in selling is to your advantage, so while the tax would be your sister's liability it might be reasonable to agree that any CGT should b paid from the sale proceeds before they are divided. Of course, if your sister is happy to leave her funs invested in the property for now that is up to her, but it may be something to consider. 

canaldumidi

As an aside, would you continue to pay rent? As sister owns 50% it would be reasonable for you to pay her rent at 50% of the market rate for her share of the property. She'd therefore be a landlord of course with all the tax and other liabilities......