How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask bigduckontax Your Own Question
bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4184
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

My brother and I purchased a house for my parents in 1982

Customer Question

My brother and I purchased a house for my parents in 1982 Where they have lived rent free from the date of purchase my father died over twenty years ago and my mother has lived there on her own until recently when she was moved to a residential home if we sell the property how much capital gains tax is liable?
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.
Hello, I'm Keith and happy to help you with your question.

You may well escape Capital Gains Tax (CGT) altogether as there is a longstanding tax concession where property freely rented (ie no rent) to a dependent relative can be exempted from CGT when you come to sell it, but this applies only to property that you owned, and was occupied by the relative, before April 6, 1988. If these conditions are not met, the property is taxed like any second home or buy-to-let investment.

However Accounting Web advises:

'The property must have been occupied rent-free and without any other consideration by the relative from before 6th April 1988. A dependent relative per s 226(6) TCGA 1992 may be either:

Any relative of his or of his wife who is incapacitated by old age or infirmity from maintaining himself or herself, or

His or his wife’s mother who, whether or not incapacitated, is either widowed, or living apart from her husband, or a single woman in consequence of dissolution or annulment of marriage.

If the individual is a woman references to a wife should be read as references to a husband.'

This tends to rather throw a spanner in the works as without evidence to the contrary the occupation may fail the incapacitated test until the death of your father, when the second, widow, occupation kicks in. That might mean 11 years where, unless your father were incapacitated, there could be exposure to CGT at a rate of 11/32 [actually expressed in months]. However, of the occupation time for tax the last 18 months don't count which reduces the fraction somewhat.

So get the wet towel out, wrap it around the head. Take the acquisition price plus buying costs, add the cost of any improvements eg new kitchens, central heating, double glazing even. Take the selling price less the costs of sale and from that you can compute the gain. Your brother and you will be assumed to be joint tenants owning the property 50/50 unless there is evidence to the contrary so divide the gain by 2. Take the now individual gain, 114/384 say 27% might be subject to CGT, deduct your Annual Exempt Allowance of 11K and tax the resultant figure at 18% or 28% or a combination of the two rates depending on individual income including the gain in the year of sale. Simple, as the Meercat in the TV advert would say!

I do hope I have thrown some light on the situation. In my opinion though as you may be looking at a substantial gain over 32 years you would be well advised to retain a trusted, local professional to handle any negotiations with HMRC over the matter.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 3 years ago.
Thank you for your support.