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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 5016
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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CGT Query My In-laws lived in a Council property that they

Customer Question

CGT Query

My In-laws lived in a Council property that they purchased in 1993 (with my assistance) under the right to buy scheme. The property, at that time, was valued at £86K but my in laws were entitled to the maximum discount of £62K under the rules of the scheme. They bought the house for £24K that I gave them on the understanding that when they had passed on the proceeds from the sale of the property would be for the benefit of my 3 daughters (all of whom are now over 21yrs old and 2 are married).

I was advised at the time that the best way to do this was to put the property in trust for my daughters, which I did. However I note from the land registry that the property was registered in my wife and my names when the property was transferred to us in 1996 (as the under the right to buy scheme rules my in laws had to own the property for at least 3 years after it was purchased from the Council).

Unfortunately my mother in law died last year and my father in law died last month. My wife is executor for their wills and we have therefore instructed an estate agent to sell the property and he has already found a buyer for £235K

I would therefore like to know if there will be CGT to pay, how it is calculated and who would be liable for it (i.e. my wife and I or my daughters).

Any help would be appreciated
Submitted: 4 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 4 years ago.
Hello and welcome to the site. Thank you for your question.

The property was transferred to you and your wife in joint names.
If the property was transferred at a value below market value then your gain will be based on market value at the time of transfer as a cost price and not £24,000.
Your in-laws lived in the property till they passed away. So it is a second home for you.

Your likely gain is the difference between £235,000 and market value at the time of transfer in 1996.

You will be able to deduct costs associated with selling the property from the above gain. As it was registered in joint names you would each be entitled to gains annual allowance of £10,900 would be chargeable to CGT

CGT rate is 18% or 28% or a combination of both depending on your toyal income in the tax year when sale takes place.

I hope this is helpful and answers your question.


If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.


Customer: replied 4 years ago.


Thank you for your response. However from the information you gave me I calculated that my CGT tax liability could potentially be in excess of £50K. I therefore sought further advice that appears to contradict your view so I would interested in your response.


 


My solicitor believes that as the house was the only property that my in laws had ever lived in, and they remained there until they died, I would only be liable for CGT on any gain made from the date my father in law died (15 Aug 13) until the property is sold even though it was registered in my name some years before when it was apparently classed as a gift with reservation.


 


However I am also told I would have to declare the property value for inheritance tax purposes even though there should not be any to pay as the combine assets of the estate are worth less than £325K.


 


 

Expert:  taxadvisor.uk replied 4 years ago.

Andrew, thank you for your reply.

Your in laws lived in the property until they died but the property was transferred to you and your wife in 1996 with no reservation. It was their main residence for the period 1993 to 1996 and any gain during that period would be covered by private residence relief and therefore no capital gains tax payable as far as they were concerned.

You never mentioned the transfer was made with reservation.

You have stated that the property was transferred to you and your wife at below market value. In the absence of any mention of conditions attached it would appear the property was not given away to you with conditions attached to it. If this is the case then it is not "gift with reservation of benefit" and CGT is chargeable on gain between market value at time of transfer and sale date.

More information on this can be found here (look at Inheitance tax when passing on property)
http://www.hmrc.gov.uk/inheritancetax/pass-money-property/pass-home-to-children.htm

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.