CGT joint owned property query

Theot_2

A man dies in in 1983 and leaves his house to his wife and daughter (a child at the time). However they were not living in this house - it was being lived in by his ex wife. The terms of the will stated that the ex wife should live in it until she died or became incapable of residing there. In 1998 this occurred and the widow moved in. Now 2008 the widow wants to sell raising 2 questions -

1) will she (the widow) be liable for CGT for the years when she was not living there (83-98)?
2) will her daughter (and non resident co-owner) be liable for CGT from 1983 or 1998 or not at all.

The now adult daughter is agreeable to gifting her share of the house to her mother (so her mother can buy a new cheaper house and use the balance to bolster her paltry pension). However the daughter can not afford to pay CGT and is worried that the amount would negate any lump sum her mother might hope to gain from the sale. Are there any grounds for legally avoiding CGT in these circumstances? Or do the parties just regret that the house was not solely left to the mother?

Elaine_Wilson

Generally, I would say the answers to your questions are -

1. Yes, on a time-apportioned basis (15/25ths of the total gain).

2. This would be from 1983.

I am assuming that boh the widow and daughter became beneficially entitled to the property in 1983 and that the will did not complicate things with trusts, which I do not understand the effects of.

It would be a good idea to enquire if dependant relative relief applies in this case as it might eliminate the gain entirely. Hopefully someone with more knowledge of this could comment.

CLAPTON

You need to seek advice about whether an ex wife is a dependent relative for CGT purposes
If so then the wife will have no CGT liability as she subsequently lived in the house, however, the non resident daughter would have CGT liability from 1998 i.e. 10/25 of half the gain less her CGT allowance of 9,600 paid at 18%.
Gifting the property would count as a disposal for GCT purposes so the tax would become liable now so would not help.

jimmo

I hate to be the harbinger of bad news but I hope it is better to get the bad news now before anyone commits themselves rather than facing big tax bills later.
I am afraid that the Dependant Relative route is an absolute non-starter. When the man and his first wife divorced they ceased to be related. So there is absolutely no way that the man’s 2nd wife can be related to his first.
The first wife was not a relative of the 2nd wife and therefore cannot be a dependant relative.
Now, I am afraid, for the really bad news. When the man died he left
1) A life tenancy in the house to his first wife.
2) The balance of the house jointly to his second wife and daughter.
Effectively, the 2nd wife and daughter jointly inherited a house with a sitting tenant paying no rent.
I am afraid that the open market value of what they inherited was very significantly less that the open market value of a house with vacant possession.
Because the widow (2nd wife) lived in the property she will be entitled to some degree of main residence relief but the daughter will not.
The big problem will be the valuation issue of what exactly wife 2 and the daughter inherited when the man died.
Figures now become important. At this stage there is no alternative but to seek a professional valuation of what wife 2 and the daughter inherited. An estimate of the selling price will enable us to get somewhere near the potential Capital Gains Tax bill.

insured

If the man left a will allowing his first wife to live in the property until death or incapacity and then the remainer to his 2nd wife and daughter, it is overwhelming likely that he has created a life interest trust which should have been notified on a form to the Inland Revenue.
If the first wife used the house as her sole ppr, then the ppr exemption extends to benficiaries of the trust.(ie 1st wife) Not really relavant as the disposal did not occur within the trust.
The house is part of the estate of the first wife for for IHT purposes and the 2nd wife and daugher inherit the property at the value of the end of the life tenancy (ie death or incapacity of first wife - or whatever event is specified in the will)
The wife and daughter have not inherited a property with a sitting tenant on the date of the mans death, but an empty property at the date of their absolute entitlement.
If daughter gifts her share to mother CGT will be payable on difference between value at date of absolute entitlement (ie death of first wife) and date of disposal.
No ppr will be available on daughters half as she has not lived there.
So to summarise
1. No
2. From 1998 (only on daughers gifted share)