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bigduckontax
bigduckontax, Accountant
Category: Tax
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My mother gifted my brother and I her 50% share in our parents

Customer Question

My mother gifted my brother and I her 50% share in our parents farm in 2001. The farm is to be sold later this year and I am aware I will be liable for Capital Gains tax and possibly inheritence tax. (My mother died in 2006). At the time of the gift the farm was valued at 1,050,000.00. I do not live on the farm, but my brother does, and will need to buy a property to live in when the farm goes. My father is still alive and retains his 50% share of the farm. Can you give some indication as to my tax liabilities and if there are any legal measures I can take now to soften the tax bill?
Submitted: 2 years ago.
Category: Tax
Expert:  Josh-2010 replied 2 years ago.

Joshua :

Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.

Joshua :

Is the farm still being used as a farm please for agricultural business?

JACUSTOMER-g6yf3hsl- :

Yes, my father is retired but still lives on the farm and my brother farms the land and also lives there.

JACUSTOMER-g6yf3hsl- :

nb: Although I own a share in the land, farm house and buildings I am not included in the 'farm business'

Joshua :

Thank you. How is your share dealt with? Do you charge a rent for the use of your share of the property?

JACUSTOMER-g6yf3hsl- :

No, I do not receive any form of income from my share. I am regarded as a silent partner.

Joshua :

Thanks. My apologies for the short delay. I have just had to take a phonecall. With your permission I will be with you in a couple of minutes if that is ok?

Joshua :

As you will be aware. the position here is that you have two differing sets of rights. The first set of rights you have under any warranty from the contractor but from what you say he has not given a warranty in any particular form. I will leave this here though because of what follows.

Joshua :

My apologies please disregard the above post. It was not intended for this thread

Joshua :

On the basis you would like some indication of your potential tax liabilities I believe it may be more helpful if I ask my colleague to assist you with this as they will be able to work through some figures with you potentially. May I ask my colleague to assist you with this?

JACUSTOMER-g6yf3hsl- :

ok

Joshua :

Thank you. She is not online right at this moment but is likely to be later today. You will receive an email as soon as she responds

JACUSTOMER-g6yf3hsl- :

ok

Joshua :

Best wishes

Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.

When she gifted you the farm your mother created a Potentially Exempt Transfer (PET) in her estate. PETs run off at a taper over 7 years and are added back to her estate on death. They are the first tranche of her estate to be subject to Inheritance Tax and if her estate is insufficient to meet the liability is cascades down to the recipients for immediate payment. The fact that you haven't been requested to meet this liability indicates that the PET is cleared.

As far as I can see you and your brother own 25% of the farm each. You thus acquired your portion for some 260K odd quid. This would be inflated by a 25% share in any capital improvements eg new barns etc. Depending upon the sale price, less costs of sale, deduct the notional purchase price and we come to the gain on the sale divided by 4. You have an annual exempt allowance of 11.1K next tax year to deduct from your share of the gain and the balance remaining would be taxed at 18% or 28% or a combination of the two depending on your income in the year of sale. Unfortunately Entrepreneurs' Relief is not available to you.

Any gain you make can be offset by any capital losses brought forward from prior years, any other capital losses made in the year and, in the unlikely event of the farm sale creating a capital loss, then this can be used to offset any other capital gains or carried forward.

I do hope I have thrown some light on this highly complex tax. When push comes to shove I would advise you to consult a local, trusted accountant well experienced in CGT matters to advise on the exact situation. You could be facing a pretty big tax bill.
Customer: replied 2 years ago.

Many thanks, can I come back to you at a later date on this subject if necessary?

Expert:  bigduckontax replied 2 years ago.
Of course, delighted to be of assistance. I hope I have been of dome help.

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