Capital gains tax

bluearco_92

My parents house was left to me and my three brothers. My brothers would like to sell the house . I would like to keep the house and refurbish it to use as a holiday home. The house is worth £160K. If I buy my brothers share of the house for £120K , refurbish it and then come to sell the house for say £200K in a few years would I pay capital gains tax? 

Veteransaver

Yes, you'd pay Capital gains tax on the profit.

bluearco_92

Would I pay the capital gains tax only on 75% of the gain i.e my brothers share and would any costs for home improvements such as new heating and roof be deductable from the CGT calculation ? 

theartfullodger

HMRC have the power to decide the price you buy brother's share for is actual market price rather than what you report. ( Obviously) 

sheramber

Questions

Is the house still owned by the estate or has it been transferred to all your names?  Are you buying from the estate or from your brothers?

Who is executor of the will? There are rules about executors buying from the estate.  Look up Self Dealing.


Capital Gains tax would be on the selling price less market value of the house when you inherited/ bought the other shares and any allowable expenses. it would depend on what the refurbishment was whether it was allowable capital expenditure or maintenance.

Also, consider whether you would be due to pay stamp duty if you purchase from your brothers.

Maybe you should seek professional advice.

Bookworm105

bluearco_92 said:

Would I pay the capital gains tax only on 75% of the gain i.e my brothers share and would any costs for home improvements such as new heating and roof be deductable from the CGT calculation ? 

no, you are mistaken
have any of your brothers lived in the property as their own main home since inheriting it?

assuming none of the brothers have lived there then when they sell their 75% share to you they will each face CGT on their respective 25% share based on the gain in value between the valuation at date of inheritance and the market value at date of "sale" to you.
If no inheritance tax  was paid upon the death of the final parent then the value used at point of inheritance has not yet been accepted by HMRC so you'd need a professional valuation that will stand up to HMRC review done at that date as the basis for the "purchase" cost

as the transfer of the 75% from bothers to you is between "connected persons" then you'd again need a professional value at date of transfer as the basis of their gain calculation, ie the "selling" price..

when you sell you will be selling as sole owner so will face CGT on the entire gain, not just 75%
that would break down into 2 calculations:
1: gain since inheritance: selling price minus value at date in inheritance x your original 25% inherited share 
2. gain since acquisition from brothers: selling price minus valuation at date of transfer from brothers x 75% share  


re costs
you state that the property would become your own holiday home. That implies you have never lived in it as your own main/only home (???) so would not be entitled to any CGT relief on it.

you need to be very careful with claiming you made "improvements". 
Just because it cost a lot does not make it a capital cost that can be claimed against CGT.
Presumably the house already has heating, so for it to be a capital cost you would need to prove that the works done resulted in a increase in capacity over what was already there. for example, just because it is a new boiler and replacement radiators  does not make it a capital "improvement"/ Just because it is a second/holiday home does not make all costs claimable. A new boiler can be a maintenance cost, not a capital improvement.
In simple terms capital improvement means adding something that was not there before, eg: an extension increasing the size (value) of the house. A new boiler does not necessarily increase the property value, it simply makes it more attractive when selling.

the extent of works done to the roof is also open to interpretation as HMRC uses the concept of "entirety" when looking at improvements. Replacement of a roof may not be a capital improvement since it is merely a part of the entirety (the whole house), it may simply be classed as a repair!
Be careful what you claim is adding value!

saajan_12

You'd pay CGT on the full property, on the difference between your sale price and:
- probate value for your 25% share
- market value when you bought from brothers for their 75% share

Re expenses, you can deduct agent and solicitors costs directly related to the sale. You can also deduct capital improvements, not just mainteance or repairs.