HELP WITH CAPITAL GAINS ON SECOND PROPERTY PLEASE!

Gandersgal

My husband helped his parents when they fell into financial difficulties back in February 1995.  They had fallen behind on their Mortgage repayments and were at risk of the house being re-possessed.

As his marriage to his 1st wife had broken down, he moved into the house and took out a mortgage for £30,000 with his divorce settlement. Under the terms of the Mortgage agreement, the house had to put into his sole name he continued paying the mortgage.  It was always his father's intention to repay him the £30,000 and the house would have been put back in his parents' name.  However, when the Mortgage was paid off by the Critical illness pay-out, his father never kept up his end of the agreement and they continued to live there rent free.  The value of the property, at the time of my husband taking out the Mortgage was approximately £70,000

My husband and I met in December 1997 then he suffered a major stroke in July 1997 and was left unable to work.  His mortgage was paid off under a Critical Illness policy. 

Approximately a year later, he moved into my house and his parents remained living in his house rent free. We got married in August 2013.

My husband's father passed away nearly 2 years ago and his mother has recently moved into a care home as she has advanced dementia.  The house is in need of modernisation, it needs a complete re-wire, the paraphet needs attention as there is water coming in one of the bedrooms above the window and the EPC rating is G, which means it can't be rented out.
 
We now have the property up for auction, but our 4 main questions are:

1) Are we able to claim any tax relief or allowances due to his parents having lived there rent-free?

2) Are we able to use the value of the property at the time of my husband buying it as the valuation when my husband bought it, or does he have to use the figure of £30,000 as that is what he actually paid for it?

3) Can we use my CGT allowance to reduce the amount of CGT we have to pay?

4)  Would treatment for Dry-Rot (November 2017) be considered an allowable expense to deduct from the CGT?

Any advice would be gratefully received.



 

Keep_pedalling

The value he obtained the property for would be £70k not £30k, the £30k he put in via the mortgage and the rest gifted by his parents. 

He would be able to claim primary residence relief for the period he lived there plus the last 9 months of ownership. 

You can’t claim for the dry rot treatment as that is classed a maintenance and I think it is too late in the day to be able to use your CG allowance.

Not sure about Q1, but hopefully others can answer that one.

What do you think the current value is?  

Hoenir

As the parents continued to live there and no rent was charged arguably the amount paid to purchase was the consideration, i.e. £30k. 

[Deleted User]

Hoenir said:

As the parents continued to live there and no rent was charged arguably the amount paid to purchase was the consideration, i.e. £30k. 

No - I believe that it is £70k - the market value as detailed by keep_pedalling

Bookworm105

[Deleted User] said:

Hoenir said:

As the parents continued to live there and no rent was charged arguably the amount paid to purchase was the consideration, i.e. £30k. 

No - I believe that it is £70k - the market value as detailed by keep_pedalling

moot point, but likely to be so expensive to argue over it would not be worth the money spent on professional fees

the property transferred between connected persons (parents & child0 therefore the law requires that to be at "full" market value. 
What is the "full" value of a property occupied by someone not paying rent?

Did a 70k mortgage valuation really take that status into account?
Is 70k the actual full market value of the property bearing in min d we have no idea of its size or location?
Is the 70k mortgage valuation just a figure to cover the size of loan, or is it the "real" price the property could have been sold for on the open market at that time?

silvercar

“ Under the terms of the Mortgage agreement, the house had to put into his sole name he continued paying the mortgage.”

That one sentence suggests that your husband became the legal owner with the parents remaining the beneficial owners.

Hoenir

silvercar said:

“ Under the terms of the Mortgage agreement, the house had to put into his sole name he continued paying the mortgage.”

That one sentence suggests that your husband became the legal owner with the parents remaining the beneficial owners.

The mortgage lender would not advanced the funds if that were the case. Backdating a document now wouldn't hold water as a consequence. 

Grumpy_chap

I wonder whether the original valuation for the property when purchased would be on the basis of "reversionary property" whereby the homeowner sells they property at a discount in return for rent-free until death / vacating the property?  

silvercar

Hoenir said:

silvercar said:

“ Under the terms of the Mortgage agreement, the house had to put into his sole name he continued paying the mortgage.”

That one sentence suggests that your husband became the legal owner with the parents remaining the beneficial owners.

The mortgage lender would not advanced the funds if that were the case. Backdating a document now wouldn't hold water as a consequence. 

Why not? Lenders are only concerned with legal ownership and their right to repossess.

silvercar

Grumpy_chap said:

I wonder whether the original valuation for the property when purchased would be on the basis of "reversionary property" whereby the homeowner sells they property at a discount in return for rent-free until death / vacating the property?  

The comment that the father didn’t keep up his agreement (what was that?) and continued to live there rent free, suggests there was an expectation that the father would move out or at least pay rent. If the parents were living there without the mortgage holder also being a resident, then it does sound like it should have been valued as property with a sitting tenant paying no rent, but the mortgage holder also lived there, so the parents become excluded occupiers/ family members with little rights. I do wonder if they had to sign something at the time the mortgage was taken out to say they would move out if the property was repossessed. This is often a requirement.

Bookworm105

silvercar said:

Grumpy_chap said:

I wonder whether the original valuation for the property when purchased would be on the basis of "reversionary property" whereby the homeowner sells they property at a discount in return for rent-free until death / vacating the property?  

The comment that the father didn’t keep up his agreement (what was that?) 

"It was always his father's intention to repay him the £30,000" ... "However, when the Mortgage was paid off by the Critical illness pay-out, his father never kept up his end of the agreement "

his father failed to repay the money the son borrowed to keep the parents in that house. I doubt there was a written agreement in place and as father is now dead it is irrelevant anyway