CGT query on second home / PRR while also renting. Fairly complicated

[Deleted User]

Hello, I have a pretty complicated query about capital gains tax and a second property which was owned by my stepfather, which I'm hoping someone can help with. It's in Scotland if that makes a difference. It's fairly convoluted so I have broken things down by property below:

Property A. This was (I think) the main residence of my stepfather and mother. Owned by my stepfather prior to his marriage to my mother circa 2001. Property was sold in July 2013. As far as I know, it was only ever in my stepfather's name.


Property B, holiday cottage in another town, again owned by my stepfather since before marriage to my mother, purchase date some time in the 1990's, never rented out or used for business. Stepfather and mother split their time between properties A & B until the sale of property A. After which they split their time between Property B and C.

Property B was gifted at no cost to my step brother in Jan 2020. As far as I know there was no outstanding mortgage and the property was only ever in my stepfather's name.

Property B was the only residential property owned by either parent from July 2013 to January 2020. After the disposal of Property B in January 2020 onwards, no residential property has been owned by either my stepfather or mother.

Property B is my main concern re CGT liability.



Property C. Not owned by either parent. It is rented accommodation, lease started in July 2013 after sale of property A.
My parents continue to live at rented property C, splitting their time between it and property B at weekends.


My questions are as follows:

Would my stepfather have been liable to pay CGT on the disposal of property B when he gifted it to my step brother, which at the time of disposal was their only owned residential property.

If so, would they have been eligible for any private residence relief, perhaps between July 2013 to January 2020? Can that be claimed for during a period in which they were also living in the rented property C?

My last question may be beyond this forum, but hypothetically, if any CGT that was due on property B had been unpaid, could my mother be potentially held liable for any or all of it, either now, or if my stepfather predeceases her, despite property B never having been in her name?
It has been suggested to be that this *possibly* may be the case, if my mother had a 'beneficial interest' in the property. I am not clear on what this means, as she has not received any income from the property, only living in it with my step father on a part-time basis.

For clarification I'm asking this prior to speaking to my stepfather and other family as things are complicated by way of his declining health and the family situation, and I'd rather be armed with some information before I raise this (possible) issue with them. It may be the case that he dealt with all this at the time.

Grumpy_chap

[Deleted User] said:

Hello, I have a pretty complicated query about capital gains tax and a second property which was owned by my stepfather, which I'm hoping someone can help with. It's in Scotland if that makes a difference. It's fairly convoluted so I have broken things down by property below:

Property A. This was (I think) the main residence of my stepfather and mother. Owned by my stepfather prior to his marriage to my mother circa 2001. Property was sold in July 2013. As far as I know, it was only ever in my stepfather's name.


Property B, holiday cottage in another town, again owned by my stepfather since before marriage to my mother, purchase date some time in the 1990's, never rented out or used for business. Stepfather and mother split their time between properties A & B until the sale of property A. After which they split their time between Property B and C.

Property B was gifted at no cost to my step brother in Jan 2020. As far as I know there was no outstanding mortgage and the property was only ever in my stepfather's name.

Property B was the only residential property owned by either parent from July 2013 to January 2020. After the disposal of Property B in January 2020 onwards, no residential property has been owned by either my stepfather or mother.

Property B is my main concern re CGT liability.



Property C. Not owned by either parent. It is rented accommodation, lease started in July 2013 after sale of property A.
My parents continue to live at rented property C, splitting their time between it and property B at weekends.


My questions are as follows:

Would my stepfather have been liable to pay CGT on the disposal of property B when he gifted it to my step brother, which at the time of disposal was their only owned residential property.

If so, would they have been eligible for any private residence relief, perhaps between July 2013 to January 2020? Can that be claimed for during a period in which they were also living in the rented property C?

My last question may be beyond this forum, but hypothetically, if any CGT that was due on property B had been unpaid, could my mother be potentially held liable for any or all of it, either now, or if my stepfather predeceases her, despite property B never having been in her name?
It has been suggested to be that this *possibly* may be the case, if my mother had a 'beneficial interest' in the property. I am not clear on what this means, as she has not received any income from the property, only living in it with my step father on a part-time basis.

For clarification I'm asking this prior to speaking to my stepfather and other family as things are complicated by way of his declining health and the family situation, and I'd rather be armed with some information before I raise this (possible) issue with them. It may be the case that he dealt with all this at the time.

It would seem as though Property B was never the PPR for your Mother or StepFather.  

CGT would appear to be due from your StepFather for the value of Property B from purchase until 2020 when it was gifted to your StepBrother.
Your StepBrother would then be responsible for the CGT from 2020 until the property is sold, assuming your StepBrother is not living at Property B.

Jeremy535897

As your parents are still alive, as you say, you can ask your stepfather some questions.
Did he ever elect for any property to be his main residence?
Did he declare the sale of property A in 2013?
Did he declare the gift of property B in 2020?
Start by reading through https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2024
If property A was nominated, or in the absence of nomination, was in fact his/their main residence throughout his ownership, there is no capital gains tax on that sale. In any event, it is some time ago.
If property B was nominated as, or in the absence of nomination, was in fact his/their main residence from 2013 to 2020, then part of the gain on the gift (the property would have been deemed to be sold at market value to your stepbrother) would have been exempt.You will see from HS283 that there is a time limit for nominating properties, which refreshes every time there is a change in properties, but that is extended when the only other property in which they have an interest is rented rather than owned by them. You will also see that, even if your only property is your main residence, there is a restriction on how many periods of absence from property B can be ignored in calculating main residence relief.
As your stepfather continues to occupy property B without a commercial payment of rent, property B is still in his estate for inheritance tax purposes, despite having gifted it in 2020.

Grumpy_chap

Jeremy535897 said:

If property B was nominated as, or in the absence of nomination, was in fact his/their main residence from 2013 to 2020, then part of the gain on the gift (the property would have been deemed to be sold at market value to your stepbrother) would have been exempt.

In this case, the OP only describes the Property B as ever having been a holiday home:

[Deleted User] said:

Property B, holiday cottage in another town, again owned by my stepfather since before marriage to my mother, purchase date some time in the 1990's, never rented out or used for business. Stepfather and mother split their time between properties A & B until the sale of property A. After which they split their time between Property B and C.

AIUI, simply the fact that Property C was rented does not preclude it from being the main residence over the Property B which was owned.  The fact seems to be, in the absence of nomination, that Property B was never the main residence and never benefits from PPR.

silvercar

“ My last question may be beyond this forum, but hypothetically, if any CGT that was due on property B had been unpaid, could my mother be potentially held liable for any or all of it, either now, or if my stepfather predeceases her, despite property B never having been in her name?”

This is interesting. As a married couple they can only have one PPR between them. Also being married the spouse whose name isn’t on the paperwork acquires the date, price and PPR of their spouse. 

However here it appears that if no declaration was made, property B has never been a PPR and is therefore an asset of your stepfather alone.

silvercar

Personally, I don’t see you have anything to gain by mentioning it. If he does pass away, anything left to your mother is free of IHT as she’s the spouse. Property B, presuming that your stepfather no longer stays in it, is not in his estate, though it’s value will be part of the estate as 7 years haven’t passed since he gifted it. If he does still stay in it sometimes then it remains part of his estate indefinitely. But this is IHT. 

CGT on the gift in 2020 to his son, is nothing to do with you now. It seems it should have been declared at the time and any CGT due paid at the time. We are now 5 years further on and I doubt you have anything to gain by raking up old ground. I would presume that he kept his tax affairs in order, in the same way you would for all his earnings, gains etc since the year dot. I wouldn’t see it your business to dig into his tax affairs from years ago.

Jeremy535897

Grumpy_chap said:

Jeremy535897 said:

If property B was nominated as, or in the absence of nomination, was in fact his/their main residence from 2013 to 2020, then part of the gain on the gift (the property would have been deemed to be sold at market value to your stepbrother) would have been exempt.

In this case, the OP only describes the Property B as ever having been a holiday home:

[Deleted User] said:

Property B, holiday cottage in another town, again owned by my stepfather since before marriage to my mother, purchase date some time in the 1990's, never rented out or used for business. Stepfather and mother split their time between properties A & B until the sale of property A. After which they split their time between Property B and C.

AIUI, simply the fact that Property C was rented does not preclude it from being the main residence over the Property B which was owned.  The fact seems to be, in the absence of nomination, that Property B was never the main residence and never benefits from PPR.

It's not clear, as the phrase "holiday home" is not used. Also, if you have no financial interest in one of the properties you live in, you have unlimited time (at least while you own both) to nominate the one you own.
If I rent premises to stay in when I work, say 5 days a week, I'm always going to nominate my weekend home as my main residence.

Jeremy535897

silvercar said:

“ My last question may be beyond this forum, but hypothetically, if any CGT that was due on property B had been unpaid, could my mother be potentially held liable for any or all of it, either now, or if my stepfather predeceases her, despite property B never having been in her name?”

This is interesting. As a married couple they can only have one PPR between them. Also being married the spouse whose name isn’t on the paperwork acquires the date, price and PPR of their spouse. 

However here it appears that if no declaration was made, property B has never been a PPR and is therefore an asset of your stepfather alone.

It's a legal question, but I'd be very surprised if anyone could be liable for tax on the sale of a property they never had a financial interest in. But I don't know enough about Scottish property law to comment.

Grumpy_chap

Jeremy535897 said:

It's not clear, as the phrase "holiday home" is not used. 

Is there a distinction between "holiday home" and "holiday cottage"?

[Deleted User] said:

Property B, holiday cottage in another town, 

If there is a distinction, it would be a very precise legal distinction and I don't think we can assume the OP was writing in that legal framework rather than lay-person's phraseology.  I suggest that the average lay person would draw a vanishingly insignificant distinction between "holiday home" and "holiday cottage".

[Deleted User]

Grumpy_chap said:

It would seem as though Property B was never the PPR for your Mother or StepFather.  

CGT would appear to be due from your StepFather for the value of Property B from purchase until 2020 when it was gifted to your StepBrother.
Your StepBrother would then be responsible for the CGT from 2020 until the property is sold, assuming your StepBrother is not living at Property B.

Yes he doesn't live at the property

Grumpy_chap said:

Jeremy535897 said:

It's not clear, as the phrase "holiday home" is not used. 

Is there a distinction between "holiday home" and "holiday cottage"?

[Deleted User] said:

Property B, holiday cottage in another town, 

If there is a distinction, it would be a very precise legal distinction and I don't think we can assume the OP was writing in that legal framework rather than lay-person's phraseology.  I suggest that the average lay person would draw a vanishingly insignificant distinction between "holiday home" and "holiday cottage".

The property has been used on weekends mainly, with neither my stepfather or mother ever living there full time.
I'm reasonably certain that it is treated as a holiday home for council tax reasons although how much relevance that has for CGT purposes, I'm not sure. I'm going  to presume it precludes it from ever being used as a main residence.

As for my stepfather and mother still using the property, yes they do. I have a feeling my stepfather may not be aware that it could still be counted as part of his estate for IHT purposes. Would it count even if it is used by them only on a part-time basis? IHT is not my primary concern at the moment, although I'll be sure to raise that point with my parents, it may come as an unpleasant surprise.

mybestattempt

[Deleted User] said:

My last question may be beyond this forum, but hypothetically, if any CGT that was due on property B had been unpaid, could my mother be potentially held liable for any or all of it, either now, or if my stepfather predeceases her, despite property B never having been in her name?
It has been suggested to be that this *possibly* may be the case, if my mother had a 'beneficial interest' in the property. 

There is no concept of beneficial ownership of property in Scotland.

Property in Scotland is held in outright ownership which is referred to as 'heritable title'.

If step dad was the sole legal owner of Property B until he gifted it to his son he is liable to any CGT on the disposal.