Thank you for your reply.
You were residing in the family property up to 1985 and the property was not in your name at the time.
In order to qualify for private residence relief the property had to be owned by you and you should have made it your only or main residence at some point during the period of ownership. Your mother has resided in the property at all times and is still living in the same property albeit rent free. Based on these facts, the property would be deemed second home for you (although you don’t own any other property) and gain on disposal of it would be chargeable to capital gains tax, I’m afraid.
More information on private residence relief can be found on HS283 here
For CGT purposes, your cost base would be the valuation at time of transfer to you in Jan 1995 and not £1. So your gain would be anything between £40,000-£60,000 depending on the valuation figure in 1995.
You could mitigate CGT by transferring 50% of the property to your wife and then sell it say in 3-6 months. This way you would be able to claim 2 lots of gains annual exemption against chargeable gain. If you were to consider this route, then you are best advised to transfer50% share before 5 Apr 2014 in the current tax year.
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.