Capital Gains Tax Allowances on Inherited Un-rented Property
Tim1965
Posts: 36 Forumite
in Cutting tax
Hi Forum Readers:)
A good friend of mine has inherited a home from her grandfather :A. As her own mother was homeless, she allows her mum to live in her house completely rent free. The property owner in question already has a home which she has resided in for many years, so subsequently she now has two houses.
Her mum has recently been hit with a serious illness and now wants my friend to sell the home that she (her mum) resides in and buy a more manageable property which in view of her illness, is understandable.;)
My friend has generally improved the property because basically, it really needed it by replacing the kitchen with better units, introducing easy to maintain flooring, a new bathroom and has introduced other new features into the home.
My friend has read that if you improve a second property that when you dispose of it, if you have introduced new improvements rather just basic repairs that you may be able to claim a CGT allowance for this? I would like to reiterate that the house has never been rented out but an eventual resale was always planned anyway.
Any help or advice would be gratefully received on this.
Cheers!
:beer:
A good friend of mine has inherited a home from her grandfather :A. As her own mother was homeless, she allows her mum to live in her house completely rent free. The property owner in question already has a home which she has resided in for many years, so subsequently she now has two houses.
Her mum has recently been hit with a serious illness and now wants my friend to sell the home that she (her mum) resides in and buy a more manageable property which in view of her illness, is understandable.;)
My friend has generally improved the property because basically, it really needed it by replacing the kitchen with better units, introducing easy to maintain flooring, a new bathroom and has introduced other new features into the home.
My friend has read that if you improve a second property that when you dispose of it, if you have introduced new improvements rather just basic repairs that you may be able to claim a CGT allowance for this? I would like to reiterate that the house has never been rented out but an eventual resale was always planned anyway.
Any help or advice would be gratefully received on this.
Cheers!
:beer:
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Comments
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It is unlikely that she can include any of those things against capital gains unless by new bathroom you are talking about an extension rather than updating an existing one.
There used to be an exemption for homes lent out to a dependant relative but unless her mother moved in before April 6th 1988 that no longer applies.0 -
no, the items you list would all be regarded as repairs (revenue expenditure), ie there was a floor, there is now another floor, same for a bathroom.My friend has generally improved the property because basically, it really needed it by replacing the kitchen with better units, introducing easy to maintain flooring, a new bathroom and has introduced other new features into the home.
My friend has read that if you improve a second property that when you dispose of it, if you have introduced new improvements rather just basic repairs that you may be able to claim a CGT allowance for this?
there was a kitchen , there is now another kitchen. "Better" units is meaningless, an "improvement" (ie capital expenditure) requires a very significantly higher standard to be installed if it is merely replacing something that was there already. "Simply" replacing tired units with new ones is not an improvement in the CGT sense, it is a repair.
"Capital" expenditure is a concept rather than a hard set of rules, you may get a flavour of it by reading:
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46915
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim46920
https://www.gov.uk/hmrc-internal-manuals/business-income-manual/bim469500 -
Thanks for your advice, I am very grateful.
There is so much contradictory advice out there, it is all a bit bewildering for her.
However, what about any CGT allowances for incurred expenses by her when she initially inherited the property like transfer of title and solicitor fees etc?
My friend is also wondering about any expenses to be incurred with estate agents when she disposes of her second property etc?0 -
Thanks for your advice, I am very grateful.
There is so much contradictory advice out there, it is all a bit bewildering for her.
However, what about any CGT allowances for incurred expenses by her when she initially inherited the property like transfer of title and solicitor fees etc?
My friend is also wondering about any expenses to be incurred with estate agents when she disposes of her second property etc?
Acquisition and selling costs can be deducted from the gain, although acquision costs would have been minimal in this case.0 -
those were costs paid by the estate of the deceased, since the estate was the "person" making the transfer to her.However, what about any CGT allowances for incurred expenses by her when she initially inherited the property like transfer of title and solicitor fees etc?
They are not "her" costs for acquiring the property, they are the winding up costs of the estate and formed part of the estate administration's overall cost base.
perfectly OK: EA's commission on sale, legal fees for the saleMy friend is also wondering about any expenses to be incurred with estate agents when she disposes of her second property etc?
she will of course get her CGT allowance, that is a single amount in the year of sale (currently £11,700 @ 18/19 rates)0 -
I'd venture to differ.
The IHT RICS valuation of the property at death would have been lower precisely becasue it was in a poor condition and the valuation would have taken into account that the place was in need of total renovation - and probably said so in the valuation report.
If it was in excellent condition with superb bathroom etc and say no 'blown' double glazing panels for example then the RICS valuation would have higher.
This probate valuation is the one the beneficiary of the house is deemed to have acquired it at for later CGT tax purposes upon its sale.
So if the person inherits a property in excellent condition needing no work then their eventual CGT will be lower, but if they inherit it in bad condition and make improvements to it to say make the kitchen actually functional and the bathroom not a health hazard then their eventual CGT will be higher.
All sounds back to front to me.
Therefore I'd say improvements made to the property over and above the state it was in when acquired should be allowable. If such improvments are subsequently replaced then this replacement should be classified as repair and thus not allowable.0 -
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I'd venture to differ.
The IHT RICS valuation of the property at death would have been lower precisely becasue it was in a poor condition and the valuation would have taken into account that the place was in need of total renovation - and probably said so in the valuation report.
If it was in excellent condition with superb bathroom etc and say no 'blown' double glazing panels for example then the RICS valuation would have higher.
This probate valuation is the one the beneficiary of the house is deemed to have acquired it at for later CGT tax purposes upon its sale.
So if the person inherits a property in excellent condition needing no work then their eventual CGT will be lower, but if they inherit it in bad condition and make improvements to it to say make the kitchen actually functional and the bathroom not a health hazard then their eventual CGT will be higher.
All sounds back to front to me.
Therefore I'd say improvements made to the property over and above the state it was in when acquired should be allowable. If such improvments are subsequently replaced then this replacement should be classified as repair and thus not allowable.
But surely that's the same as for property acquired in any other way ? If I purchase a run down property, I'll get it at a lower price than if it was in a good condition. If I spend money doing it up, then I'll get a higher price for it when I come to sell and so - unless I've been living in it - my CGT liability will be higher (or income tax payable if I'm making a business of it)0 -
except that if the estate did not have to pay any IHT because it was below the threshold then the valuation has not been "ascertained" by HMRC and they can substitute their own valuation when the CGT calculation is submitted. ie make a "determination" of what CGT would be dueI'd venture to differ.
The IHT RICS valuation of the property at death would have been lower precisely becasue it was in a poor condition and the valuation would have taken into account that the place was in need of total renovation - and probably said so in the valuation report.
If it was in excellent condition with superb bathroom etc and say no 'blown' double glazing panels for example then the RICS valuation would have higher.
This probate valuation is the one the beneficiary of the house is deemed to have acquired it at for later CGT tax purposes upon its sale.
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg16251
no, it's fact. The valuation at date of death reflects the property condition.So if the person inherits a property in excellent condition needing no work then their eventual CGT will be lower, but if they inherit it in bad condition and make improvements to it to say make the kitchen actually functional and the bathroom not a health hazard then their eventual CGT will be higher.
All sounds back to front to me.
what you perhaps have forgotten is there was a time when IHT and CGT rates were the same, so it mattered not.
but the disconnect you comment upon now is caused by the fact there are now differential rates, but the rules remain the same
your thoughts are incorrect, a repair is a repair, not an "improvement"Therefore I'd say improvements made to the property over and above the state it was in when acquired should be allowable. If such improvments are subsequently replaced then this replacement should be classified as repair and thus not allowable.0 -
I am going to get my friend to ring HMRC for advice on this one, just to get it ascertained. As some of you have very kindly pointed out, a repair is to repair existing or previous features.
However, when one improves by "introducing" new features into a home that were previously not there before, I honestly like a reasonably minded person thought that this might apply...
My friend is also faced with demolition of a large garden shed and also landscaping/gravelling lawned areas to enable better upkeep.
I suppose she would be able to claim tax relief if she introduced a form of drainage system in the garden as well that was not previously in existence?
As we have now ascertained that the only additional expenses that she might be able to recover would be expenses incurred with estate agents and solicitors when she disposes of her asset.
I spoke to a friend of mine who works for HMRC and she kind of "glazed over" when I asked her about this.:D0
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