Complex (for me!) CGT question on 2 property ownership...

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    Complex (for me!) CGT question on 2 property ownership...

    Hi, this is my first post and I'm looking for some initial guidance on what I think is a somewhat complicated problem i'm heading towards...
    Apologies, its a long post!

    The facts:

    In 1983 my parents and I purchased our family council home under the Thatcher 'Right to buy' scheme. It cost £16000. The mortgage was in all of our names.
    We took out an interest only mortgage and as the property value increased we remortgaged and improved the property.
    My father passed away in 2006
    I took over the mortgage in 2009 when my mother went into a care home. I changed it to a repayment mortgage which I paid off in 2013 My brother moved into the property in 2009 and is not paying rent.
    My mother passed away last year. The deeds have not yet been changed and are in both her and my names.
    I live in my own property worthy approx. £420,000. The family home is now worth approximately £500,000. This would seem a lovely position to be in but the CGT bill on selling the family home is going to be large and I am trying to work out the best course of action going forward to enable my brother to have a roof over his head and minimize any capital gain I might incur.

    If I simply sell the family home I will have a huge capital gains bill (I will anyway, at some stage, I think) and I can't because my brother is living in it and has no income apart from his pension and no other property. My thoughts are to let it out. My brother would need to move out and has no money to pay for a property so I am thinking of remortgaging the family home and using the money to purchase what would effectively be a buy to let with my brother living in it. I could then let out the family home and the income received would pay the mortgage on the buy to let, the remainder giving me some income. However, I will still incur a CGT bill at some stage in the future.

    An alternative plan would be to sell my main residence and move into the family home, thereby making it my main residence. I could use some of the money from my sale to purchase a property for my brother to live in. In either case I would retain ownership of the property my brother is in.

    If I take the second option am I right in thinking I will only reduce my CGT bill on the family home from the time I move into it until I decide to sell it in the future (less any expenses and bills I can produce to show money spent on improvements and personal allowances)? As I haven't, at any point (since moving out of the family home in 1986) declared it as my main residence there will be no relief from CGT between purchase in 1983 and when I eventually sell it. I don't think I can even claim the 3 years I lived there, from purchase in 1983 to me moving out in 1986.

    Whichever way I look at it I don't think I can escape a large bill if I sell the property now or in the distant future. The question is how to minimise it?! Any help or suggestions gratefully received.

    Thank you in advance.


    Are you on the deeds as joint tenants or tenants in common?
    If the latter, what's the percentage ownership?
    When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
    Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


      I was trying to estimate your bill for capital gains tax if the property was sold at £480K ..

      So from 1983 to 2017 = 34 years and probable capital gain of £480K .

      Your entry cost in 1983 was one third of £16K. So shall we say it is £6K for your one third share.

      You father died in 2006 , and the rise in value over 23 years to 2006 would have been approx 23 x £480/34 = £ 324K

      Father's one third share may be worth £324/3 = £108K passed onto you and mother ( £54K each )

      So your acquisition cost may be £6K ( in 1983) + £54 ( in 2006) + (£240K in 2017) = £300K.

      So if you sold for £480K , your capital gain = £480K - £300K = £180K.

      So tax to pay may be £180K - £11K ( free allowance ) = £169 x 28% = £47K approx.

      With £400K free after sale , I think you could buy 2 modern properties outside London.


        If you purchase a property with a BTL loan it is unlikely that your brother would be allowed to live there.


          Hi JPKeates, we were tenants in common and what happened was my father left his share to my mother so she had 67% and I had 33%, which changes the figures Gordon 999 came up with.

          Re your response Gordon999 - thank you so much, you made me realize the obvious - that I hadn't actually owned all of the property all of the time and so my CGT liability is reduced from what I was thinking. In fact I think that because I received my mothers larger share when she passed away last year (which I had not posted so you were unaware) It may be lower than in your calculation as my 'entry level' of 67% of the property is much nearer to todays value. Looking back through the paperwork last night, the property was valued at 220k when my father died in 2006 and for my mothers probate last year at 460k.

          Kape65, yes, I found out that my brother couldn't live in a buy to let which is why we are thinking I could remortgage the home I own (where he lives at the moment) and have tenants move into that (so that property would be the buy to let) and he would move to another property which I would buy with the remortgage proceeds. the tenants would be living in the old family home which will have the mortgage on it and the rental income will cover the mortgage. A bit fiddly but it would allow me a small income with money left over from the mortgage payments and me being able to make use of the equity by buying another property. That's the theory anyway, I'm waiting to hear from a mortgage broker at the moment as to the feasibility of the idea.

          Thank you for your responses, they are much appreciated.


            You're probably going to need a tax specialist.
            When you are tenants in common with a percentage ownership, who lived where and when becomes critical and fiddly.

            For example, your third is subject to PPR for periods you were living there, but not when you weren't - family home or not.
            And you don't want to introduce CGT into your own (separate) property.
            Your parents, who look like they lived there throughout, would be entitled to PPR for their 2/3rd share.

            You would need to work through the timeline for each ownership share as a separate tax calculation.
            When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
            Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


              Yes, I think you are right jpkeates. What started out as a fairly simple purchase and investment all those years ago has a life of its own now and has become complicated. I didn't for instance know if I might be able to claim PRR for the 3 years I was there when we first purchased it but just having looked at the PRR quidelines on the UKGOV website that may be possible and it also helps to have lived there when I come to selling it. In addition I lived back In he first house whilst work was carried out on my new house so relief is available for that period. The allowances and rules also changed over our period of ownership so I think a specialist will definitely be needed to untangle it.


                I don't think the changes in allowances or rules over time will have too much effect.
                You can probably work it out in Excel - but, if it were me I'd let an expert do it for me, just for the peace of mind.
                When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
                Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).


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