Capital Gains Tax

lobster1239

Hi, I wasn’t sure if this was the correct board.

I’m based in Scotland for reference.

I’ve owned my own home for over 30 years.  My father passed away and half of my parents home was held in trust for me with my mother remaining in the house.  The share of the house officially passed to me a few months ago when my mum moved into a care home.

I’ve decided to buy my parents home and i will pay my mum half of the value of the property which will be £75,000 (£150,000). The money will be paid shortly.  I’ll buy this with savings. 

I hope to get around £125,000 for my home which I bought for around £32,000 (initially £25,000 but I took out more money for repairs etc over 25 years ago).  No mortgage. 

A work colleague has informed me that I may have to pay capital gains tax. My plan was to move into the “inherited house” and then sell what had been my main residence. 

Is this wise. Will I have to pay tax. What are my options. Many thanks . 

eskbanker

CGT is only payable when disposing of an asset, and if the only one you're selling is your main residence then there's no CGT payable on that.

However, when it eventually comes to selling the other property, there may be a CGT liability arising from the time you owned a stake in it while not living there.

lobster1239

Hi, thanks for the quick reply.  I’ll keep my current long term home as my main property then. I’ll buy the other one and then hopefully sell my long term home within a few months,  I’ve got no plans to sell the inherited house for many years.  What a relief as I thought I was going to get hit with a huge tax bill. Many thanks again,

eskbanker

lobster1239 said:

I’ll keep my current long term home as my main property then. I’ll buy the other one and then hopefully sell my long term home within a few months

I'm confused, are you keeping your long term home or selling it?

Nomunnofun1

lobster1239 said:

I’ll keep my current long term home as my main property then. I’ll buy the other one and then hopefully sell my long term home within a few months,  I’ve got no plans to sell the inherited house for many years. 

I’m confused too. Are there two or three houses?

JGB1955

Might you have additional SDLT to initially pay upon buying your future house - you'll be purchasing house #3?

Bookworm105

so you are purchasing the residual 50% share of mother's ("the inherited") home, which thus removes that property from liability for her care home fees as mother then has the money from it instead.
you will move into it as your new main home 

you will sell your own (30 year) main home ("old home") once you move out of it.

Provided the sale of old home completes within 9 months of you moving into the inherited property then the old home will have 100% CGT exemption as you will get Private Residence Relief for the entire occupation period plus the final 9 months of ownership even if not lived during those months. Only if it takes longer than 9 months would a small CGT exposure arise

you are not selling the inherited home, therefore the 50% of it you already own by virtue of inheritance from father is irrelevant for now

lobster1239

Hi, bookworm105.  That’s precisely what I meant.  There’s only 2 houses as you describe much better than me.  I really hope my house sells within 9 months but out of curiosity, do you know what the percentage of CGT would be if it takes longer. Many thanks 

lobster1239

Oh, I’m assuming the rules are relevant to Scotland too as I know they sometimes differ.  Thanks 

eskbanker

lobster1239 said:

Hi, bookworm105.  That’s precisely what I meant.  There’s only 2 houses as you describe much better than me.  I really hope my house sells within 9 months but out of curiosity, do you know what the percentage of CGT would be if it takes longer. Many thanks 

The effect on the PRR would depend on how long it took to sell but is likely to be negligible unless it takes years - if you lived in the property for 30 years and it took a year to sell after you moved out, 369/372ths of the gain would be exempted, i.e. you'd only be on the hook for less than 1% of the tax on the gain.

silvercar

eskbanker said:

lobster1239 said:

Hi, bookworm105.  That’s precisely what I meant.  There’s only 2 houses as you describe much better than me.  I really hope my house sells within 9 months but out of curiosity, do you know what the percentage of CGT would be if it takes longer. Many thanks 

The effect on the PRR would depend on how long it took to sell but is likely to be negligible unless it takes years - if you lived in the property for 30 years and it took a year to sell after you moved out, 369/372ths of the gain would be exempted, i.e. you'd only be on the hook for less than 1% of the tax on the gain.

Agree with the above, plus you have a CGT allowance if not used elsewhere. Currently the CGT allowance is £3,000 so you can deduct that from the gain.