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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I own a property in which my mother resides. It was jointly

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I own a property in which my mother resides. It was jointly owned for 17 years and signed over to me 5 years ago. I am married and live with my husband in a house that is in his name only. Will I be subject to capital gains when I sell my property?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

I'm afraid that you probably will. If you let me know when you acquired an interest in the property and how that occurred (purchase by you or gift to you) and what the purchase price was if you bought it or the value when you inherited a share and when it was signed over to you five years ago and what it is worth now, I'll do some calculations. Have you ever lived in the property during your ownership of it as your main home? Who were you in joint ownership with?

Customer: replied 2 years ago.

Hi Tony

We bought the property jointly in 1994 when my mother moved to be closer to me. In April 2010 she signed it over to me (as a gift) as we are building another property which will be big enough for us all to live as she gets less able to look after herself. Although the property market was in recession at the time I think it would have been worth at least £250 - £270k. It is now worth £300k. I would like to retire but am a 40% tax payer. I have never lived in that house but my husband and i would consider selling his house and renting if we could claim my property as a main residence - if that would help. My mother is 88 years old.

Expert:  TonyTax replied 2 years ago.

Thanks.

Can you tell me what your mother and yourself paid for the property in 1994 please. I assume the estimated values you gave were for when your mother gifted you her share of the property five years ago.

Expert:  TonyTax replied 2 years ago.

In case you are cuurently unable to remember the 1994 purchase price of the property, I will tell you how to calculate the capital gain.

The cost of the property for CGT purposes which you will deduct from the sale proceeds to arrive at the gain will be the sum of 50% (assuming it was owned in equal shares) of the 1994 purchase price and 50% of the value of the property when your mother gifted you her half in 1994. You will also be able to deduct the sum of the purchase and disposal costs (legal fees, survey fees, stamp duty, selling agent fees etc) from the disposal proceeds in your calculation of the gain.

The first £11,000 of the gain will be tax free due to the annual CGT exemption and the balance will be taxed at 18% or 28% or a combination of the two rates depending on the level of the sum of the gain and your income in the tax year you sell the property.

If the property was sold in 2014/15, one of the following scenarios would apply to you:

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

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

3 If your income in 2014/15 excluding taxable gains is less than £41,865 but more than £41,865 when you add the taxable gains, then some of the gains will be taxed at 18% and some at 28%.

You have had an interest in the property for 20 years so you are not going to make CGT go away completely even if you moved into it for a while. For a property to be treated as your main home, you have to live in it at some point. Take a look at the HMRC helpsheet HS283 here for more information on the main residence and CGT.

As your mother has continued to live in the property after giving you her half share, the gift to you of her half in 2010 was a gift with reservation of benefit which you can read about here and here. As such, should your mother die whilst still living in the property, the value of a 50% share at the time of her death will be included in her estate for Inheritance Tax purposes.

If the reservation ends because your mother leaves the property, the gift will become a potentially exempt transfer (PET) at that time at the value at that time and the seven year clock will start ticking. If she dies within seven years of the date the clock starts ticking, then the value of her share at that date (the date the clock starts ticking) will be included in her estate for Inheritance Tax purposes. As you intend to buy a bigger property for you all to live in and, given that your mother is 88, the likelihood is that the value of 50% of the property when it is sold and your mother moves out will be included in her estate for IHT purposes. At the current value, the PET value would be £150,000.

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

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15846
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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