Future CGT on second home - what is purchase price based on?

Spindles_2

Hi, I am hoping to buy sibling out of my late parents home as a second property (with a buy to let mortgage). We have a RICS valuation, IHT valuation based on two or three estate agent valuations, and the price I've agreed with sibling which is somewhere in between. House was on market for sale briefly at less than the IHT valuation but quite a lot more than the RICS valuation.

Should I sell in the future, which one of these would the purchase price for the CGT calculation be based on? I think Gov.uk suggests IHT valuation but it's not completely clear (to me!).

(And for land registry forms to transfer to our names initially, what valuation should the fee be based on? The valuations cross thresholds so wonder if we should go for the higher one anyway.

Any advice welcome! Thank you.

Land_Registry

Assuming the property is already registered.

If you are going to assent (form AS1) the property as executors to the two of you as beneficiaries the registration fee is payable under Scale 2 on the current market value you state on the application form AP1 (panel 4). You can state the value and submit a copy of that valuation with your application - there's no right or wrong answer re which valuation you provide but I would recommend picking one and sticking to it across all channels used

However if you decide to 'buy your sibling out' re his share then you would be completing a transfer (form TR1) and it's consideration would be how much you are paying your sibling. A Scale 1 fee would be payable on that amount

I can't comment for CGT/IHT requirements but before deciding to wait or assent/transfer I would recommend you both seek legal advice as to your options and which is 'best' in the circumstances

poseidon1

As regards the purchase price of the half share from your brother, it should be based on the property's current market value, and not probate value from what seems to be 2022.

Of course your brother could opt to sell at the lower probate value, but HMRC will still deem him to have sold at true market and expect him to pay CGT on that basis, so not a brilliant outcome from his point of view. Further more , having sold at undervalue he is deemed to have gifted to you the difference for future IHT purposes.

Spindles_2

Thank you both!

Yes, property is registered. Land_Registry - when you say 'submit a copy of that valuation' what if there is no valuation for that amount it is just our best estimate of what the market value would be?

Poseidon1 - probate value was 2024 (I have asked a previous question about a different estate/relative which was 2022). Similarly how do I assess current market value? I think the price we have agreed is fair and around the current market value taking into account the work needed but it's higher than the RICS valuation and lower than the probate value. Why would my sibling have to pay CGT? This has confused me (even more!). And I don't think they are is selling at under value or if so not by much but it hadn't occured to me that this could be viewed as gifting me the difference, and how would that be worked out?

mybestattempt

https://forums.moneysavingexpert.com/discussion/comment/81902373#Comment_81902373

The simple answer to your original question is that for CGT purposes you acquire half the property at half the market value at date of your late father's death and the other half from your brother at half the market value of the property at the date of transfer.

If your brother sells his half share to you then because you are 'connected persons' for CGT purposes then the transaction is deemed to have taken place at market value for both you and him.

It would be unusual for the current market value of a property, many months later, to be less than the date of death/probate value.

It isn't clear whether the RICS valuation was for the market value of your late father's property at date of death (and you chose to use a higher figure provided by an estate agent for IHT purposes) or a current/later date market value obtained to inform the potential buy out by you of your brother's half.

You and your brother should also bear in mind that HMRC refer both date of death and disposal values to the VOA and the values you use may be disputed.

Spindles_2

Thank you. That sounds like no CGT or gifting implications for him which I wouldn't want.

Estate agent valuations for probate soon after date of death were a lot higher than the RICS valuation a few months later which took into account foam insulation in the roof and a number of other issues. We got the RICS valuation done to agree a price between us. By the time we put it on the market a year later, the market locally had gone down but the asking price was still higher than the RICS valuation. I would say we have agreed a fair price now given the work that needs doing but I don't really know whether that would count as the current market price.