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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15946
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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in 1994 mum bought her council house my husband and I put

Resolved Question:

in 1994 mum bought her council house my husband and I put up deposit for her and took out mortgage in her name in 1998 she transferred property to my name and also mortgage After her death in 2009 I separated from my husband and have lived in the house for 4yrs 6mths am considering reconciliation with husband if this happened and I sold my house would I PAY capital gains tax and how would I work it out.
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

I'd be happy to work out whether you would be liable for any Capital Gains Tax if you let me have the following information:

1 The value of the property when your mother gifted it to you in 1998. Which month in 1998 was it gifted to you?

2 The value of the property now.

3 When did you move into the property (month in 2009)? Do you still live there?

4 Did you make an election for the property to be treated as your main residence after you separated from your husband?

5 Did you mother pay you a market rent for living in the property after it was gifted to you?
Customer: replied 3 years ago.

1 don't know what value was in1998 moved into property in nov 2009 contacted tax office to change my address is that the same as electing as main residence? mum did not pay any rent

Expert:  TonyTax replied 3 years ago.
Advising the tax office of a change of address s not the same as making the election I referred to I'm afraid. I need to know the value of the property in 1998 as well as what it is worth now and the month it was given to you as the value at that time is your "cost" for Capital Gains Tax purposes. If you can get that information, I will be able to do some calculations.

Alternatively, I can tell you how the taxable gain if there is one is calculated. Let me know what you would like me to do.
Customer: replied 3 years ago.

service excellent thanks for your help unfortunately cant give you any more information at this time.

Expert:  TonyTax replied 3 years ago.
Thanks.

Leave this with me while I draft my answer in whuch I will explain how to calculate the taxable gain.
Customer: replied 3 years ago.

that's great thanks

Expert:  TonyTax replied 3 years ago.
Hi again.

The HMRC helpsheet HS283 will give you some useful information on the main residence and CGT.

As you did not make an election for the property given to you by your mother to be treated as your main home, that will now be determined by the facts but, given that you had separated from your husband, I would say it is clear that for the past four and a half years, the property you live in now has been your main home. This will have an impact on your share of any gain you may make if you sell the marital home at some point in the future.

You need to divide the gain (sale proceeds net of disposal expenses such as legal fees and selling agent fees less value in 1998 which is your "cost" for CGT purposes) by the number of months or days of ownership. The gain is treated as having accrued evenly over the entire period of ownership.

That part of the gain covered by your occupation of property will be exempt from CGT as will the gain for a maximum of the last 18 months of ownership if you were not living there during that period. That accounts for 4.5 years worth of the gain as of now, a little more if you stay there until it is sold in a few months. The remaining gain will be taxable but the first £11,000 of that will be tax free due to the annual CGT exemption.

There are two rates of CGT, 18% and 28%. The rate or combination of rates that you will pay will be dependent on the level of your income in the tax year of disposal. If you sell the property in the current tax year, 2014/15, one of the following scenarios will apply:

1 If your income in 2014/15 including the taxable gain is £41,865 or less, then all the taxable gain will be taxed at 18%.

2 If your income in 2014/15 excluding the taxable gain is more than £41,865, then all the taxable gain will be taxed at 28%.

3 If your income excluding the taxable gain is less than £41,865 but more than £41,865 when you include the taxable gain, then part of it will be taxed at 18% and part at 28%.

Finally, as your mother continued to live in the property after she gifted it to you, the gift will have been a gift with "reservation of benefit" which you can read about here. Assuming she lived in the property until she passed away, its value at that time should have been included in her estate for Inheritance Tax purposes. Whether her estate would have been liable or not is something you need to consider as it may come to light at some point. You can read about Inheritance Tax and the transfer of an unused nil-rate IHT band here.

I hope this helps but let me know if you have any further questions.
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