Advice for a total novice re CGT on sale of a house please.

Ponsienella2

I would really appreciate some help regarding Capital Gains tax. Any comments and advice will be much appreciated.

 

Scenario

·       My father-in-law bought his house in Sept 1969.

 ·       In June 1997 my father-in-law gifted each of his two sons a 25% share of his property, maintaining a 50% share himself, as Tenants in Common. (I would guess, based on

         other sales in the road, that the property was worth @£42k at the time of the Deed of Gift).

·       In May 2006, Father-in-law passed away and his remaining 50% share of the property was then split equally between his two sons. (Estimated value of £100k was used for

        probate purposes).

·       The house has remained unoccupied since then.

·       In Dec 2018, the brothers transferred 50% of their share of the house to their spouses, so 4 equal shares held as Tenants in Common. For Land Registry fee we calculated

       (guessed) the property was worth £160k.

·       In Mar 2019, the week we were going to instruct an agent to sell it, my sister-in-law died so brother-in-law decided we should postpone selling it.

·       It is now SSTC for £225k and, hopefully, we will complete in December 2022.

 

Questions

1.     I have read that, for acquisitions prior to 1981, the valuation at 31 Mar 1982 should be used. However, I’m unsure if this relates to acquisition by father-in-law or his sons. I

        presume his sons?

2.     For CGT, can I just provide my valuations based on looking at sales of other houses in the road or do I have to employ RICS Surveyor?

3.     Am I correct in assuming I will need to provide valuations as at June 1997, May 2006, Dec 2018, Mar 2019 and Sales price at Dec 2022?

4.     If £100k was accepted on probate form in 2006 and, in Dec 2018, Land Registry accepted £160k valuation for purpose of calculating fees, does it sound acceptable to use

       these values on CGT Calculation form?

5.     I’ve read guidance stating you don’t pay CGT on assets given to a wife but that, on disposal, the wife pays CGT based on the difference in value between when husband

       first owned the asset and when the wife disposed of it. Does this mean that I, as the wife, will, in effect have owned a 12.5% share of the property since June 1997 when

       it was gifted to my husband?

6.     If so, am I correct in my, very simplistic calculation for CGT below:

                                              Disposal                             56,250 (£225k x 25%)

                                              Less Value on acquisition   -5,250  (£42k x 12.5%)

                                              Increase in value                51,000

 

                                             Less:

                                             Share of improvements        -4,000

                                             Share of Selling costs             - 675

                                                                                          46,325

                                             Less:

                                             CGT Tax free allowance      -12.300

                                             GAIN                                     34,025

 

As my only income is £1.4k p.a., I am under the threshold of £50,270 and so will pay tax at 18% on the £34.025k. That is, £6,124.50.

Does that look like a reasonable calculation?

jimmo

Your sums look ok but the respective valuations could be a problem.

1. The acquisition prior to 1982 was by your FIL so is not an issue here. The sons' acquisition was later, in1997.
2. You are not obliged to provide professional valuations, but you can rest assured that HMRC will check those valuations with the Valuation Office Agency (VOA). More on that later.
3. June97 Yes, May 06 Yes, Dec 18 No, Mar 19 Not you but your BIL will need to, Dec 22 Yes.
4. If IHT was paid the £100,000 valuation was "ascertained" and is set in stone for CGT purposes. If no IHT was due the valuation is open to challenge by HMRC. Again, more on that later.
5. Yes.

 

With regard to valuations, I think the first thing to consider is what exactly needs to be valued?

When your FIL gifted 25% shares to each of his sons did, he gift 25% of the entirety or was there a clause in the deed of gift to the effect that your FIL could continue to live there rent free? In other words, did he gift shares of a house which had a sitting tenant paying zero rent? The latter would have a significantly lower value than the entirety.

 

Assuming no IHT was paid in 2006 the IHT office would have asked the VOA whether there was any danger that the £100k valuation submitted to them was so understated that an accurate valuation would produce an IHT liability.

For CGT purposes the CGT office will now ask whether the £100k valuation is overstated.

If it is then it is very likely that a Compliance Check (or Enquiry) will follow.

 

Now, in the event of a Compliance check resulting in an increase in the tax payable then if you had used a professional valuer you would have a very strong argument that you had done everything possible to make a correct Return but if you used your own valuations, you would be liable to a penalty because of your negligence or carelessness.

 

Ponsienella2

Thank you so much for responding.

1. Thanks for advising of valuation dates. My brother-in-law wants me to put his calculation together too and I thought that he would have to have a valuation as at his wife's date of death. (I am now wondering what valuation brother-in-law would have have used when he applied for probate).


2. The only restriction when father-in-law gifted shares of his home to my husband and his brother was:
'RESTRICTION: No disposition by a sole proprietor of the land (not being a trust corporation) under which capital money arises is to be registered except under an order of the regjstrar or of the Court'.

The Deed of gift just states that 'I transfer to X  and Y the land in the title in the following shares: 50% to myself and 25% each to X and Y. The transferees declare they are tenants in common in the above shares and that the survivor of them cannot give a valid receipt for capital money arising on a disposition of the land'.

So, all good there. No reduction in the valuation due to a sitting tenant.


3. Firstly, no IHT was paid due to the value of the estate being too low so, the £100k valuation on the probate form will be open for discussion. At the time similar properties were around £120k  but the property was in need of central heating and other work so we put a value which was £20k lower to achieve the £100k 'valuation'.


Is it possible to find out what the VOA valuations are?

Ponsienella2

Do you mind if I ask further questions?

Self-assessment
I have looked at the CGT Guidance and can see there is form CG34 'Post-transaction valuation checks for capital gains' This states to complete if after the CGT calculation has been done and to submit it to HMRC, allowing 3 months before your filing date for it to be checked. However, none of the 3 of us disposing of the property receive self-assessment forms for tax, so do we have to use something different?

My husband is employed and just pays tax via PAYE.
I am not employed and my income is just a small pension of £1.4k p.a.
My brother-in-law is a State Pensioner and doesn't receive Self-Assessment forms.

Improvements
I have seen another response to a CGT enquiry by someone who stated that such things as Window Installation, new kitchen and bathroom were not allowable as improvements, Can anyone point me in the direction of a list of what is allowable so that we don't claim items that HMRC don't consider improvements?

We have:
Installation of Double-glazed Windows and Doors.
Installed Central Heating.
Installed 2 gas fires and fire surrounds.
Fully tiled bathroom.
Fitted new bathroom sanitary ware with shower.
Installed fully fitted kitchen.
Had extra electrical sockets added.
Had walls and ceilings plaster boarded and skimmed throughout.
Changed skirting boards, architrave throughout.
Paved front garden.
Landscaped rear garden including fencing and 2' pergola.
Changed asbestos roof over bathroom to clay tiles.


Any idea how these things will be viewed in terms of improvements because they definitely increase value in most people's eyes? if they accept these as improvements, would they just reduce previous values accordingly to comensate?


Thank you anyone, in advance, for your help.

Ponsienella2

2' pergola? Lol. It is 12'.

[Deleted User]

Personally I can’t see that any of the items on the list would be regarded as improvements. To put it another way, they would be likely able to be claimed as repairs against rental income.

https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2030

Jeremy535897

Items which might qualify are the central heating, if there was no central heating before, and replacing the asbestos roof, because the replacement materials are not "broadly equivalent" to asbestos.

[Deleted User]

Jeremy535897 said:

Items which might qualify are the central heating, if there was no central heating before, and replacing the asbestos roof, because the replacement materials are not "broadly equivalent" to asbestos.

Yes - I see from the op’s second post that the property ‘was in need of central heating’ so, presumably, none existed before.

Ponsienella2

Thank you @[Deleted User] for that link and your response. Also, thank you to @jeremy535897 for responding.

Yes, no central heating existed before but I am wondering whether to just not bother claiming any expenses (apart from selling expenses). My thought is that they may just think that, if there was no central heating, then the house valuation must be overstated by the cost of it.

Does anyone have an answer regarding finding out what VOA valuations would be for the property at various valuation dates?

[Deleted User]

Ponsienella2 said:

Thank you @[Deleted User] for that link and your response. Also, thank you to @jeremy535897 for responding.

Yes, no central heating existed before but I am wondering whether to just not bother claiming any expenses (apart from selling expenses). My thought is that they may just think that, if there was no central heating, then the house valuation must be overstated by the cost of it.

Does anyone have an answer regarding finding out what VOA valuations would be for the property at various valuation dates?

In my experience HMRC appointed an independent valuer to make the valuations on their behalf - a local estate agent! This is no different from what you should be doing to obtain those same valuations. You are probably starting to overthink this!

Jeremy535897

I agree. Start from this viewpoint (for each of you). Only claim for what you reasonably believe to be enhancement expenditure that is reflected in the value of the asset when sold. Read the reference in the Inland Revenue manual referred to earlier.

Ask a local estate agent to provide values at the relevant dates in writing for you to use in your computation. You should be charged a relatively modest amount. Failing that, if there are values at similar times for similar properties in the same road, use those, adjusted as appropriate for any differences to your property (including condition). Print off the valuations and keep them. Put in a 10% discount for the fact that each owner owns only part of the property where a part valuation is appropriate. Use the £100,000 value where relevant as you have no better guide than that.

Explain what you have done in the white space on the returns, and expect to be one of the vast majority whose return will never be looked at. HMRC are already completely overwhelmed, and the millions of extra taxpayers filing self assessment returns as a result of the Autumn statement will mean they have no time to look at anything! (With apologies to @jimmo )

If I am wrong, the worst you should face is a bit of interest if HMRC successfully argue that more tax should have been paid.