Capital Gains Tax

GillMundy

My mother died in 2017 and in her will her house was left to her 4 children. One child was named as having a life interest in the house. The house was valued at £155000 and we all agreed that one child could buy the others out at this price. Due to covid and one child having to arrange funding, he is now in the position to purchase at the agreed price of £155000.
The house is now valued at £230000 but he has done a lot of work on it.
We have been told that if we sell him the house for the origanol price, we are gifting it to him at an undervalue so what figure will we have to pay CGT on? £155000, £230000 opr the diference of £75000?

canaldumidi

The difference in value, less the cost of allowable improvements, less selling costs, less annual allowance.

theartfullodger

Agreed.  Declared and paid within 60 days of sale.

p00hsticks

canaldumidi said:

The difference in value, less the cost of allowable improvements, less selling costs, less annual allowance.

Is the property still in the estate or has it been transferred to the names of the four individuals ? If the former, it might be worth considering if it is benefical to put it into the names of the individuals so that you can each make use of your CGT allowances (although bear in mind there may also be some cons, such as losing any FTB allowances)

saajan_12

GillMundy said:

My mother died in 2017 and in her will her house was left to her 4 children. One child was named as having a life interest in the house. The house was valued at £155000 and we all agreed that one child could buy the others out at this price. - was this also the probate value? 
 Due to covid and one child having to arrange funding, he is now in the position to purchase at the agreed price of £155000. 
The house is now valued at £230000 but he has done a lot of work on it. - was the work general maintenane or capital improvements? 
We have been told that if we sell him the house for the origanol price, we are gifting it to him at an undervalue so what figure will we have to pay CGT on? £155000, £230000 opr the diference of £75000? 

In general, the CGT is based on the Disposal value - Purchase value - costs - applicable reliefs for your respective shares. 
* Disposal value = market value as this is not an arms length transaction, so 230k / 4 each. 
* Purchase value = probate value, so 155k / 4 each
* Costs include money spent on capital improvements (not regular maintenance) as well as solicitors and agent costs to buy / sell the property. Were the 'works' capital improvements and since the resident child paid to improve everyone's shares, could the others pay back their shares of costs (and then add back to the purchase price)? 
* Reliefs = £12.3k allowance per person on their respective share. I assume you haven't lived there, so no other PPR applicable. 


eg if the resident child spent £40k on improvement works, then the others could reimburse 10k each on paper, and then increase the selling price to 155k + 40k = £195k. That then justifies including your share of costs in the CGT calc, which becomes
Disposal value 230k / 4 = 57.5k
- Purchase value 155k / 4 = -38.75k
- Costs 40k / 10 = -10k
= Net 8.75k 
This is covered by your £12.3k allowance so £0 CGT to pay. 

Without accounting for costs, you'd have 18.75k - 12.3k = £6.45k  taxable at a rate of 18-28% depending on your income tax band, ie between £1,161 and £1,806 tax payable. 

Slithery

saajan_12 said:
* Reliefs = £12.3k allowance per person on their respective share. I assume you haven't lived there, so no other PPR applicable.  

This is assuming that the property has already been transferred to the beneficieries. If it still belongs to the estate then only one lot of allowance is available (the estates).