Capital Gains - is my mum liable?

miss_saski
miss_saski Posts: 15
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edited 17 January at 9:28AM in Cutting tax
Hello,

I am currently looking for advice about whether my mum will be liable for Capital Gains Tax or not. She seems to think that she does not need to worry about it, but I have a gut feeling she is wrong and want to see if I really should push her to see a financial advisor.

There is a bit of a backstory, but I will try and make it as brief as possible...

My mum and dad bought a house between 1991 and 1994, for somewhere between £45k and £90. Vague details I know, but mum cannot remember and I am currently looking for any paperwork to get answers.

They raised me and my 2 sisters at this house, until dad suffered a brain hermorrhage in 2005, and another in 2008. The second one hit a lot harder, and he was declared disabled. For a couple of years after that, we all helped care for him at home. It all became too much for 1 sister, who moved out into her own rented place as soon as she could afford it. Dad then became very aggressive towards my mum, so she moved out as well in about 2010.
I was then dads sole carer as my youngest sister was only about 13 at the time. Eventually in 2013 he moved into a nursing home as he needed more care.

Mum ended up buying a house in 2018 with a new partner, but only owns something like 20% as tennants in common. This is her current permanent address.

Dad passed away last year. As they were still married and dad had a will, the little he owned was left to my mum. Mum now owns 100% of the house (not taken towards the nursing home, as he had a dependant still living at the house).

I live in this house with my partner, which still has a £90k mortgage on it. As she cannot remortgage at her age and does not have anywhere near £90k, Mum has offered to gift me the house with the mortgage. Her words, but what she means is that she will gift me the equity and my partner and I will get a mortgage for the remaining £90k. We estimate that the house is currently worth £250k. 

Now, from my research, as this is not mums main residence and has not been for many years, she cannot claim relief on it. So using the Gov's own CGT calculator, I estimate that she could owe about £40k (based on the lower original purchase price of £45k). However, she has been told by a "financial advisor" (who I know is really just a know-it-all mate that I dont trust) that she wont have to pay CGT. Of course, she doesnt like the idea of paying £40k, so she is trusting this other guy over me.

I do not want to go ahead and get a mortgage, only for her to get HMRC chasing her after she received bad advice. I believe even if she sold the house (or it gets repossessed), she still would have to pay CGT anyway? Should I be REALLY pushing her to ignore her mates' advice and see a real financial advisor? I am apparently just paranoid :s

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  • silvercar
    silvercar Posts: 46,765
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    She should be seeing an accountant rather than a financial advisor.

    Posting on the tax board should get you some more responses. I will ask the forum team to move it over.
    I'm a Forum Ambassador on The Coronavirus Boards as well as the housing, mortgages and student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to [email protected] (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
  • bobster2
    bobster2 Posts: 442
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    edited 17 January at 9:14AM
    So in simple terms - your mother and father jointly owned a house from 1991/94 to 2023.

    From 1991/94 until 2010 it was your mother's primary residence.

    Your father lived there from 1991/94 until 2013 when he moved into a nursing home.

    I'm not sure about your mother - but your father's estate will have CGT liability from 2016-2023. 

    https://www.birchwoodinvestment.com/cgt-relief-stays-for-people-moving-to-long-term-care/

    Moving into care you benefit from CGT relief for 3 years after leaving your primary residence.

    [Igore = I was wrong about this part]
  • mexican_dave
    mexican_dave Posts: 253
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    I agree - for this issue see an accountant, I have had a similar issue with property from parents.
  • silvercar
    silvercar Posts: 46,765
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    bobster2 said:
    So in simple terms - your mother and father jointly owned a house from 1991/94 to 2023.

    From 1991/94 until 2010 it was your mother's primary residence.

    Your father lived there from 1991/94 until 2013 when he moved into a nursing home.

    I'm not sure about your mother - but your father's estate will have CGT liability from 2016-2023. 

    https://www.birchwoodinvestment.com/cgt-relief-stays-for-people-moving-to-long-term-care/

    Moving into care you benefit from CGT relief for 3 years after leaving your primary residence.
    No CGT on death, so father has no liability for CGT on a property that he owned that was sold after his passing.
    I'm a Forum Ambassador on The Coronavirus Boards as well as the housing, mortgages and student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to [email protected] (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
  • km1500
    km1500 Posts: 2,120
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    edited 17 January at 8:43AM
    agree entirely - on death capital gains tax is cancelled and what you are looking at tax-wise is inheritance tax

    you don't need an accountant to work IHT out - hopefully!
  • Emily_Joy
    Emily_Joy Posts: 1,161
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    But if the house worth only 250K and there are no other assets there will be no inheritance tax either ( as it is under 325K)
  • Emily_Joy
    Emily_Joy Posts: 1,161
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    I think the OP is asking whether their Mum has to pay CGT when she sells the house which is not her main residence. 
  • silvercar
    silvercar Posts: 46,765
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    Emily_Joy said:
    I think the OP is asking whether their Mum has to pay CGT when she sells the house which is not her main residence. 
    I think this is the only query. It would be worth speaking to an accountant, who may be able to look at whether the fact that the mother's children were still in the property has any bearing and also the difference between beneficial ownership and legal ownership.

    It may be that your mother could look at whether she paid extra SDLT when she bought with her new partner in 2018.
    I'm a Forum Ambassador on The Coronavirus Boards as well as the housing, mortgages and student money saving boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Forum Ambassadors are not moderators and don't read every post. If you spot an illegal or inappropriate post then please report it to [email protected] (it's not part of my role to deal with this). Any views are mine and not the official line of MoneySavingExpert.com.
  • [Deleted User]
    [Deleted User] Posts: 0
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    edited 17 January at 10:42AM
    Mum owned the half of the house for the period from 1991 (or 1994) until the present and is now looking to sell. Let’s say 30 years! It was her main residence until 2010 -let’s say 16 years (ignoring the final nine months rule). On this half we have a gain - Half potential sale price less half legal costs less half original cost = gain before reliefs. Relief is 16/30 of this gain leaving 14/30 chargeable. 

    The other half was acquired on husbands death - her cost is therefore the value at that time. Again - half sale proceeds less half legal costs less that value at husbands death. No reliefs available.

     Add two halves together and deduct annual exemption. 

    This is very rough - seek advice but it is likely that some CGT is payable. Above all - ignore the financial advisor.
  • jimmo
    jimmo Posts: 2,278
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    edited 22 January at 2:51PM


    The other half was acquired on husbands death - her cost is therefore the value at that time. Again - half sale proceeds less half legal costs less that value at husbands death. No reliefs available.

     Add two halves together and deduct annual exemption. 


    No, no! The house is not 2 separate assets. It is one.

    Mum originally acquired a half share of the property between 1991 and 1994. When she acquired the other half by inheritance the acquisition value is treated as enhancement expenditure and the capital gain is calculated as the net proceeds of sale less ( the original cost of the half share plus the probate value of the 2nd half).

     

    Private Residence Relief is then calculated on the whole gain.

    CG64930 - Private residence relief: ownership period: qualifying for relief - HMRC internal manual - GOV.UK (www.gov.uk)

     

    It appears that mum and dad were not living together at the date of his death so there won't be any question of her inheriting his period of residence.


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