Can payment of a Legal Charge on property sale completion be deducted in CGT calculation?

mayflyjules

Sorry this is long but I can't find an answer anywhere else!

Summary of situation:

• My mother and father bought family home in '78, they split up and father moved out in '82, later divorced amicably, mother stayed in house and they both retained Joint Tenant ownership of it (father happy for my mother to live in it until she died).
• 2 years ago my mother got ill and ended up needing to go into a nursing home. Due to her joint ownership of the house she had to pay full care fees and we entered into a Deferred Payment Agreement with the local council to pay the fees. A Land Registry Legal Charge was put on the house for this so the council will get paid back when the house is sold.
• My mother passed away in May so my father has become the sole owner and the house has just gone on the market for sale. The council is owed c. £41.5k under the DPA, which they will receive as part of the sale conveyancing.
• As it was not my father's primary residence for most of the time they owned it, he's liable to pay CGT and I'm helping him to get an idea of how much he'll need to pay.

Question:
Since it is called "Capital Gains* Tax and is meant to be a tax on *profits* from a sale, and the £41.5k DPA debt will be paid direct from the solicitors to the council as part of the sale completion so my father will never receive that money, I would have thought that the debt amount should be deducted in the CGT calculation, but when I use the gov.uk calculator it doesn't seem to allow for this, so now I'm wondering, can it be deducted or is he really liable to pay tax on a substantial amount of money that he won't actually receive?

The gov.uk calculator has this question:

How much did you pay in costs when you stopped owning the property? This is what you paid for:

• estate agents or auctioneers
• solicitors or conveyancers
• any professional help to value your property, for example a surveyor or valuer
• advertising to find a buyer

So this doesn't mention something like a payment related to a charge on the property. I understand that paying off a mortgage as part of a sale isn't deductible because there's already a deduction for the purchase price and you can't deduct mortgage interest, but the DPA charge isn't related to the purchase.

I've googled it and searched in this forum but can't find anything mentioning this kind of charge in relation to CGT.

poseidon1

Simple response to your question, neither the LOA debt or costs incurred in registering the charge are allowable expenditure for CGT purposes.

The debt is of course a deduction against your mother's estate purely for probate and IHT purposes.

Turning too the actual calculation of CGT by reason of the sale by your father, are you aware that the calculation is in two parts?

The 1st part relates to your mother's half share at death. This half share receives a market value uplift for cgt purposes so any gain on that half is unlikely to  produce a gain on a sale so close to death, but may produce a loss related to 50% of sales costs( Solicitors and estate agents fees). Did you get a valuation of the property at death?

Your father's half share of the gain is time apportioned from the date he moved out in 1982 with a deduction for 50% of the solicitors/ agents fees. 

Finally turning to your mother's estate. Since she was not married to your father when she died, her half share of the house together with any other personal assets only receives the basic £325k nil rate band for IHT purposes ( £175k residence nil rate band disallowed). 

How, have you dealt with reporting your mother's estate for probate/IHT?   Did you ( incorrectly) exclude the market value of her half share of the house? If so note the following guidance -

https://www.gov.uk/tax-property-money-shares-you-inherit/joint-property-shares-bank-accounts