Property Valuation for CGT

canarydan

Hi guys,

I've asked this on here a while back but I think I overcomplicated it (and it's quite complicated already!) I'm trying to work out what the CGT liability would be on our family home. Before she died, my Mum changed the ownership of the home to what I believe is called tenants in common, so she owned 50% of it and Dad owned 50% of it. She then added a codicil to their will that stipulated her 50% is to be held in trust upon her death to her beneficiaries upon Dad's death, or earlier if the trustees see fit. The trustees are myself, Dad and my elder sister. My younger sister was not an adult at the time the changes were made. Dad moved out of the family home and it is currently rented out but he is considering selling it in April and the trustees all agree that Mum's half should then be distributed to me and my two sisters. So, my question is, how would the Capital Gains Tax be calculated? To assist, here is a rough timeline;

Dec 1985- Home purchased for approx £36,000

Jul 2010- Mum dies, her half of the house is held in a trust

Apr 2014- Dad moves out of the half

Apr 2024- Hypothetically, house sells for £400,000

So, my three questions are;

1) As Dad is a trustee and lived in the house as his main home until 2014, does the trust qualify for private resident's relief, so the CGT would only apply to the gain between April 2014 and the amount the house sold for?

2) How do they assess the value of the house at the point that Dad moved out?

3) As Mum's half of the house is owned by a trust, only the trust's CGT allowance applies, and not the individual beneficiaries? Ie, myself and my two sisters won't get to use our individual CGT allowances, because it's the trust that would be liable for the CGT and not the beneficiaries?

Thanks in advance.

Keep_pedalling

If this was an immediate post-death trust your father would have been the beneficial owner of the hole house so any CG calculation would be on when he moved out.

canarydan

Keep_pedalling said:

If this was an immediate post-death trust your father would have been the beneficial owner of the hole house so any CG calculation would be on when he moved out.

The trust was essentially formed by Mum's wishes as stated in a codicil set out several years before she died. At the same time, they amended the ownership of the house so it was 50% Mum's, 50% Dad's, so Dad as far as I am aware, Dad was never the owner of the whole house and he is unable to sell it without the consent of the trustees.

I am thinking you're right regardless, CGT would be calculated from when he moved out, but what I am unclear on is how they calculate the value of the house at the point he moved out? Is there a formula that is used that assumes a uniform year on year (or month on month) increase in value from the date of purchase to the date of sale? And then you would use that to ascertain the different between the value at the point he moved out and the point of sale?

Heedtheadvice

From what you write ( and not I am not an expert or legally qualified )

The trust was formed as  a will trust upon you mother's death. It  was then legal owner then of 50% of the property on behalf of the beneficiaries who were your Dad until his death and/or the 'children's. 

At that time of your mum's death the Executors should have had the house valued as part of your mum's assets at date of death for probate/confirmation ( depending upon country) and the Executors legal duties discharged.

From then the trust owns 50% of the property as Tennants in common and need to discharge trustees duties regarding the estate in trust such as defined in the codicil, reporting to HMRC for income (rent?) and or capital gains etc.

I would doubt that the trust would benefit from private residence relief. The same applies to the trustees.

However your father would be entitled to private residence relief for his 50% of the property ( in line with the rules for the rental period which I do not remember) had the property been sold prior to his death or if it is so sold.

The value of the property for Dad's CGT will be the 50% of the selling price less costs less the amount of property relief that comes into play. He needs to follow the rules for that as it depends on the length of time resident. (I presume the rental income he was/is due was reported to HMRC according to the income from property rules )

Note: On the death of your father he no longer is one of the beneficiaries of the trust but the trust still exists till wound up. The HMRC position for the trust follows the rules for Trusts and Estates until wound up. The CGT allowance for a trust is quite small and there is potentially a fairly large sum to pay to HMRC for the gain between the her estate's valuation of her 50% at your mum's death and the time of disposal.

As written at the top of this post all this is my personal interpretation and could be inaccuratebut is certainly an indicator of what is involved. I do not have the fine detail or knowledge of the will or codicil.The trustees have ( one of) their legal duties to follow the law and this is sometimes quite complex for trusts etc. If you do not know already the answers to your question I hope this points you to getting professional advice. Not only would that keep the trust right but could also benefit your father to claim/pay what he is due.

Keep_pedalling

Heedtheadvice said:

From what you write ( and not I am not an expert or legally qualified )

The trust was formed as  a will trust upon you mother's death. It  was then legal owner then of 50% of the property on behalf of the beneficiaries who were your Dad until his death and/or the 'children's. 

At that time of your mum's death the Executors should have had the house valued as part of your mum's assets at date of death for probate/confirmation ( depending upon country) and the Executors legal duties discharged.

From then the trust owns 50% of the property as Tennants in common and need to discharge trustees duties regarding the estate in trust such as defined in the codicil, reporting to HMRC for income (rent?) and or capital gains etc.

I would doubt that the trust would benefit from private residence relief. The same applies to the trustees.

However your father would be entitled to private residence relief for his 50% of the property ( in line with the rules for the rental period which I do not remember) had the property been sold prior to his death or if it is so sold.

The value of the property for Dad's CGT will be the 50% of the selling price less costs less the amount of property relief that comes into play. He needs to follow the rules for that as it depends on the length of time resident. (I presume the rental income he was/is due was reported to HMRC according to the income from property rules )

Note: On the death of your father he no longer is one of the beneficiaries of the trust but the trust still exists till wound up. The HMRC position for the trust follows the rules for Trusts and Estates until wound up. The CGT allowance for a trust is quite small and there is potentially a fairly large sum to pay to HMRC for the gain between the her estate's valuation of her 50% at your mum's death and the time of disposal.

As written at the top of this post all this is my personal interpretation and could be inaccuratebut is certainly an indicator of what is involved. I do not have the fine detail or knowledge of the will or codicil.The trustees have ( one of) their legal duties to follow the law and this is sometimes quite complex for trusts etc. If you do not know already the answers to your question I hope this points you to getting professional advice. Not only would that keep the trust right but could also benefit your father to claim/pay what he is due.

The type of trust is important here, hopefully it is an immediate post death trust which would not have used any of her NRN or RNRB and more importantly avoids any capital gains between the date of her death and the time her husband moved out. In this case the trust would be the legal owner but the OPs father would be the beneficial owner.