Help with reporting a Capital Gain

Ponsienella2

I would appreciate it of someone could advise me regarding reporting Capital Gains which all 3 of the following have made on property held as tenants in common:

My husband just pays tax via PAYE and does not receive self-assessment forms. 
I am not working and only in receipt of a small pension and do not receive self-assessment forms.
Brother-in-law is retired and does receive self-assessment forms.

I have calculated separately for myself and my husband but we need to know how to report our gains so that we can pay CGT due.
We have both set up Govt Gateway IDs. I have also completed a 'Calculate your Capital Gains Tax' sheet. That's about it.
Is there a special form to fill in or do I just go on line?


I've seen a form, SA108  Capital Gains Tax Summary but don't know if that is a requirement in my circumstances or not. HELP!!

Thanks in advance. I appreciate your time.

Jeremy535897

First, if there is any tax to pay, all of you need to use the online system and report the gain and pay any tax due within 60 days of completion:
https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020

If There is tax to pay, all three of you need to complete self assessment tax returns. The two that currently don't will need to register:
https://www.gov.uk/register-for-self-assessment/not-self-employed

If there is no tax due, neither you nor your husband need to report using the online system, nor complete a self assessment tax return (unless there is some other reason to do so). Your brother-in-law will not need to use the online system either, but will need to declare the capital gain on his self assessment tax return using SA108 if the proceeds from the sale of the property and any other capital disposals exceed £49,200.

Ponsienella2

Can anyone also advise on my brother-in-law's CGT situation?

He was gifted 25% his father's property in 1997         MV  £38,000 x 25%:  £9,500
Inherited a further 25% when his father died in 2006  MV £100,000 x 25%: £25,000
Transferred 50% of his share to his wife Dec 2018. (Each of their acquisition costs now £4,750 + £12,500, totalling £17,250).
His wife died Mar 2019 so her 25% inherited by him. MV £165,000.

His sale proceeds will be £225,000 x 50%: £112,500
Are his acquisition costs £4,750 + £12,500 + (25% x £165,000).
If so, his gain will be £54,000 (less 50% of selling expenses) so £51,567.
After his Annual Exemption of £12,300 his gain that is subject to CGT is £39,267.
As myself and my husband combined have a gain of £50,217 after both exemptions have been taken into account, I am wondering if calculation for my Brother-in-law is correct.
Is it that he benefits in some way (in terms of CGT, obviously not emotionally) by the death of his wife? 
Do the figures sound correct to the experts among you on here? (I mean the basis of how they are calculated. We are happy with MV calculations).

Ponsienella2

Jeremy535897 said:

First, if there is any tax to pay, all of you need to use the online system and report the gain and pay any tax due within 60 days of completion:
https://www.gov.uk/report-and-pay-your-capital-gains-tax/if-you-sold-a-property-in-the-uk-on-or-after-6-april-2020

If There is tax to pay, all three of you need to complete self assessment tax returns. The two that currently don't will need to register:
https://www.gov.uk/register-for-self-assessment/not-self-employed

If there is no tax due, neither you nor your husband need to report using the online system, nor complete a self assessment tax return (unless there is some other reason to do so). Your brother-in-law will not need to use the online system either, but will need to declare the capital gain on his self assessment tax return using SA108 if the proceeds from the sale of the property and any other capital disposals exceed £49,200.

Thank you Jeremy.

Yes, we all have CGT to pay. So:
1. We will all need to use the online system to report the gain and pay the tax.
2. My husband and I will each have to complete self-assessment tax returns.
3. B-I-L needs to complete SA108 as proceeds exceed £49,200.

Tank you very much for the help. I really appreciate it.

Jeremy535897

All three of you will need to complete SA108 when you submit your tax returns, because there is tax to pay (the £49,200 figure is only relevant if there is no tax to pay).

Your brother has less tax to pay because of the uplift to market value at the date of his wife's death on 25% of the property. Your figures look correct, although I should point out that a 25% share of a property is worth less than a quarter of its total value.

Ponsienella2

Jeremy535897 said:

All three of you will need to complete SA108 when you submit your tax returns, because there is tax to pay (the £49,200 figure is only relevant if there is no tax to pay).

Your brother has less tax to pay because of the uplift to market value at the date of his wife's death on 25% of the property. Your figures look correct, although I should point out that a 25% share of a property is worth less than a quarter of its total value.

Thank you Jeremy.

If each share of the property at each event (original gifting, inheriting from father-in-law and then brother-in-law inheriting from wife) is worth less than that proportion of its total value, do you know:
1. What percentage I should reduce our valuations by?
2. Do I need to show in notes somewhere for HMRC that we have done this?

Jeremy535897

It is somewhat complicated. If the original gift by father was made when he owned 100% of the property, then there needs to be no discount on that base cost as the appropriate share of the full market value is treated as the acquisition cost of the donee.

The base cost on the father's death will depend on whether probate values were agreed with HMRC (which only happens if inheritance tax is payable). Assuming no agreement, the question is what proportion of the house did father own at his death. If he owned 50%, for example, that might be worth about 10% less than half of the total value of the property (but see below).

You have to tick the penultimate box on SA108 where it asks if any valuations have been used. I assume the market value on father's death of his 50% was in the probate papers, so you can use that (it should already have been discounted for the fact that it was a part share of the property). The value on husband and wife transfers is irrelevant, but the value used for brother in law should be the probate value of his wife's share (which again should have taken into account any discount for the fact that it was a part share). It is therefore likely that you will only need to put in a discount if you are using valuations of the whole property as a starting point. There is an information box at the end of SA108 where you can put in explanations.

Ponsienella2

Jeremy535897 said:

It is somewhat complicated. If the original gift by father was made when he owned 100% of the property, then there needs to be no discount on that base cost as the appropriate share of the full market value is treated as the acquisition cost of the donee.

The base cost on the father's death will depend on whether probate values were agreed with HMRC (which only happens if inheritance tax is payable). Assuming no agreement, the question is what proportion of the house did father own at his death. If he owned 50%, for example, that might be worth about 10% less than half of the total value of the property (but see below).

You have to tick the penultimate box on SA108 where it asks if any valuations have been used. I assume the market value on father's death of his 50% was in the probate papers, so you can use that (it should already have been discounted for the fact that it was a part share of the property). The value on husband and wife transfers is irrelevant, but the value used for brother in law should be the probate value of his wife's share (which again should have taken into account any discount for the fact that it was a part share). It is therefore likely that you will only need to put in a discount if you are using valuations of the whole property as a starting point. There is an information box at the end of SA108 where you can put in explanations.

Thank you again Jeremy.

Seems like we are okay on original valuation as FIL did own 100% so no discounting necessary.

No IHT due so probate values not agreed on FIL's death. 
FIL did own 50% at the time of his death.
I entered a valuation of £100k when others were selling for £120k - £125k due to it needing some refurbishment. I probably deducted too much anyway.  so I'm happy that valuation will still reflect 10% discount due to the shares being less than the sum of the parts.

Do you know if the probate form will be referred to?  I, unwittingly, put down the house was owned equally by FIL and his 2 sons (so 1/3 share each) rather than as 50%, 25%, 25%. Husband and I only realised this wasn't the case last year. 

We did have 3 Estate Agent valuations end of Feb/start of Mar 2019 as we were going to market the house then. They were: £160k, £165k and £160k - £180k (3rd from Purple Bricks) which is why I put £165k after looking at prices others in the Road sold for too. 

We decided not to sell when SIL suddenly died.
We then left things and didn't madkeg until last Autumn, completing on the sale in late Jan this year.

I actually threw away the valuations from 2019 fairly recently, not realising they may be needed.
Will HMRC expect BIL to provide evidence of basis for valuation?

My BIL didn't ask me for info about valuations when he applied for probate so I will have to ask him what figure he used. (Glad that doesn't affect husband and I).

Thank you again so much. You've been a great help.

Jeremy535897

I think it is unlikely that anyone will refer back to the probate but it is possible. If the probate percentages were wrong, so be it. It cannot have affected any liability arising on death. You could add an explanation in the white space on SA108, or not. Writing an explanation perhaps increases the chances of someone studying things in more detail, but explains the anomaly in advance, which is preferable.

Ask the estate agent whose value you used for a copy. They should still have it. If not, there's nothing you can do about it. It is unlikely, but not impossible, that HMRC will ask to see it, but if you can't produce it, so be it.

Ponsienella2

Jeremy535897 said:

I think it is unlikely that anyone will refer back to the probate but it is possible. If the probate percentages were wrong, so be it. It cannot have affected any liability arising on death. You could add an explanation in the white space on SA108, or not. Writing an explanation perhaps increases the chances of someone studying things in more detail, but explains the anomaly in advance, which is preferable.

Ask the estate agent whose value you used for a copy. They should still have it. If not, there's nothing you can do about it. It is unlikely, but not impossible, that HMRC will ask to see it, but if you can't produce it, so be it.

I don't mind them studying it in more detail as we weren't trying to get away with anything. It was a genuine error on the probate form which made no difference as no IHT was due on the low value estate. I don't think the error particularly matters. I think I will explain it in advance as I do like things to be correct.

My husband signed the Deed of Gift  but didn't have a copy and never gave it another thought until we saw the deed a few years ago.

I will contact the agents for copies of the valuations.

Thanks again. You've been a brilliant help to me.

Jayne

Jeremy535897

One thing that posters on here have had trouble with is making sure that they don't pay capital gains tax twice. This is because they are not correctly recording the credit for tax paid within 60 days of completion in the appropriate box on SA108. When you complete your self assessment tax return, check before submitting it that the tax calculation on the SA302 is giving credit for the tax paid within 60 days of completion.