CGT question

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    CGT question

    Hi,

    I'm hoping someone can help me.

    My dad bought his house circa 1971/72 for approx £4K. His PPR.

    Somewhere down the line he remortgaged and my mum became a joint owner. Still their PPR.

    In October 2009 my mum and brother bought a 2nd home and my parents refurbished it and finally moved in Feb 2011.

    They began renting out their original family home May 2011.

    Sadly, June 2013 my dad passed away. My mum signed over her share of the 2nd home (jointly owned by my mum and brother) to my brother, so he now owns outright.

    My mum still lives in this 2nd home, as a lodger, and to this day continues to rent out what I call our family home. She's getting on and wants to sell the only property she owns i.e. the one she's renting out. What, if any, CGT is she liable for?

    I have been informed as its my mums only property, she won't be liable for any CGT, but I'm sceptical about this advice.

    Any help would be very much appreciated.

    #2
    My understanding, (although others here are more knowledgeable on this) is that it the CGT would be payable on the difference between the sale price of the property and the value at 'somewhere down the line...', less any demonstrable purchase costs, selling costs and improvement costs, times the length of time it was let divided by the time since 'somewhere down the line...' There may also be other letting allowances in there somewhere but as a starting point you probably need to establish a few more facts - dates, costs, values etc.

    Comment


      #3
      CGT will be due from 2011, but the calculation is complex and you will take prices from before that.

      The fact that it is her only property is not relevant.
      The fact that it was not her home since 2011 is.

      GCT on your dad's share will have been reset on his death (i.e the value at probate is the starting value) - on your Moms share it will predate that for a starting value. You need to calculate CGT for each half separately really. You need a lot of information here to calculate the exact CGT due.

      But CGT only applies if she sells it (or gifts it to you). If she dies there is no CGT but there is inheritance tax (potentially). Whether it is wise to sell depends on what she wants to achieve.

      Comment


        #4
        Thank you both kindly for responding and providing advice.

        The value of the property in 2011 and at the time of my dads death was £115,000. It's approximate value today is £125,000.

        Does the difference of say £10,000 fall in to the £11,100 exemption, therefore, no CGT due? Or will she pay £18% on the £10,000? Or 18% on the total sale value?

        Comment


          #5
          I should say, my mum would like to sell it now as she has a potential buyer.

          Comment


            #6
            Only your Dad's share resets at his death. For your mom her 50% has to be backdated to the time your DAD bought it (not the date at which she acquired it) - i.e the original purchase price of 4000 applies to 50% of the sale. So 0.5*(125000-4000) - so there is a very large gain of about £60,000 -- some would be written off as her PPR and lettings relief, so it all depends on the exact dates your dad transferred a share (50% is the default unless you told HMRC otherwise) because your Mom probably cannot be acquiring PPR relief during the period she was not an owner at all. This is actually quite a complex CGT calculation --- but no it does not simply reduce to the 10K.

            Transfers between husband and wife do not incur CGT at the point of transfer, but only later when sold on -- but the calculation has to do with the value at which the transferring spouse bought it, not the value at the time of transfer (unless the transfer occurs at death -- which only applies to 50% of the thing here).

            I suggest that you make a detailed list of all the numbers and dates and see a tax accountant. Someone here might help you otherwise.

            Comment


              #7
              If the increase in value between when they began renting the property and now (selling) is £10k it will be under your mother's annual allowance and there shouldn't be any CGT to pay.
              The actual calculation will be fiddly, but there's only a gain while your parents were renting out the property, and that total gain is less than your mother's annual allowance.
              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).

              Comment


                #8
                Here my calculation:

                Mums 50% share : Capital Gain = ( 125K - 4K ) /2 = 60K approx. Period of residence = 30 years out of 35 years ownership so taxable gain= 5/35 x 60K = 8.6K which she can claim letting relief up to 40K. so no cgt to pay.

                Dads 50% share : Capital Gain= ( 125K - 115K) /2 = 5K. which is covered by her capital gains annual allowance of £11,100.

                I would not expect any cgt to pay.

                Comment


                  #9
                  Not correct jp. The increase in price cannot be subdivided by point in time (ie sliced into the increase that occurred before or after it was a PPR. There is only the TOTAL increase, and the % of time that it was PPR).

                  Also there is a big issue of the extent to which the mom's share is going to be backdated in price to the time of the original purchase (as CGT was not payable when it was transferred to her as a spouse). See my notes sent at the same time as yours.

                  Comment


                    #10
                    I agree with Gordon999's calculation with one concern (see below). There is likely no CGT, but that is not because there has only been a small recent increase. In transactions of much higher value this becomes a big issue because people a) imagine that if the increase in price occurred when it was PPR and then they let out, that somehow the increase while PPR does not matter, and b) transfers from husband to wife have purchase value backdated and are not written off at death.

                    However Gordon, I wonder whether she will really be able to take PPR as 30 out of 35 years off her share. Although she was "resident" as you say, she was not an owner at all during much of this period of residence -- so can you count PPR time if you actually have no ownership at all. This applies to one of my properties and has long bothered me. In other words is PPR inherited on a spousal transfer???

                    Comment


                      #11
                      Originally posted by AndrewDod View Post
                      Not correct jp. The increase in price cannot be subdivided by point in time (ie sliced into the increase that occurred before or after it was a PPR. There is only the TOTAL increase, and the % of time that it was PPR).
                      You're right - a pre coffee brain fart by me.

                      Misread the sequence.
                      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).

                      Comment


                        #12
                        Originally posted by AndrewDod View Post

                        However Gordon, I wonder whether she will really be able to take PPR as 30 out of 35 years off her share. Although she was "resident" as you say, she was not an owner at all during much of this period of residence -- so can you count PPR time if you actually have no ownership at all. This applies to one of my properties and has long bothered me. In other words is PPR inherited on a spousal transfer???
                        I assume that Dad and Mum were married and living together in the family home when property was put into joint name. When 50% of property was transferred to Mum, there is no cgt and Mum's acquisition cost is assumed at price paid when Dad bought the property.

                        If Mum had moved out before the property was put under joint name , then she would not be allowed to claim ppr.

                        Comment


                          #13
                          Would it be complicated by the valuation at 1982 as it hasn't been PPR for the whole period in question?

                          Comment


                            #14
                            Originally posted by pebblepebble View Post
                            Would it be complicated by the valuation at 1982 as it hasn't been PPR for the whole period in question?
                            I think you are reminding me the capital gains system started from 1982 and the capital gain should be calculated using the house value from 1982 , not from 1971.

                            This means the 50% Mum's share of capital gain is reduced from £60K to 60 x 35/45 = £46.6 K and the previous £8.6 is reduced to £6.6K . So no tax to pay.

                            Comment


                              #15
                              You're all so knowledgable! I seriously cannot thank you all enough. I was so worried about my mums situation, but now feel confident that my mum can sell the house with no CGT impact. Thank you all so, so much.

                              Comment

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