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bigduckontax
bigduckontax, Accountant
Category: Tax
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My siblings and I (4 of us) bought our parents house from them

Customer Question

My siblings and I (4 of us) bought our parents house from them in 2006 for £495k. We have an interest only buy to let mortgage of £283k on the property.
They remained in the house and paid market value rent to us every month.
We are now on the point of selling the house and have received offers of £795k. This means that the increase in value is £300k.
We will be buying a new flat with cash from teh equity in the house for them to live in in the region of £325k. Will we each need to pay 28% on our £75k (of the increase) each, after our allowance of £10,900 has been paid?
I am assuming yes but wanted to ask.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Many people do not realise that whenever you sell a residence any gain is subject to Capital Gains Tax (CGT), but for the majority of people, who only own their sole or main domestic residence the liability is reduce by 100% with Private Residence Relief (PRR) which is given automatically.
So in the case of this house the gain is of the order of 795K - 495K = 300K. Remember that the selling price is reduced by the costs of sale and the buyong price by the costs of purchase. In addition if there have been any improvements eg new kitchen, installation of central heatoing, double glazing etc that expenditure reduces the gain also.
So the gain is 300K /4 = 75K each. Your siblings escape any CGT liability as PRR applies; they were occupying their sole or main domestic residence. You were not so your tranche of 75K can be assessed. Now we come to a slightly difficult bit, to whom and why were your siblings paying rent to live in their own house? I suspect that the 'us' you mention in your question is you and your spouse? Am I correct? Also did you yourself ever occupy the house after the purchase from your parents? Once I have your response I can advise you further.
Customer: replied 2 years ago.

Sorry... I explained my self badly.. My parents continued to live in the house and paid rent to the four of us.

None of us (the children) lived in the house after we purchased it from my parents.

We used the rent to pay the mortgage and any upkeep/repairs etc that needed to be done on the house. We have not done any major works on the house since we bought it.. just maintenance and upkeep, servicing of boilers etc.

Do costs of sale mean the conveyancing solicitors costs and the estate agents fees?

Best Regards

Harriet

Expert:  bigduckontax replied 2 years ago.
Sorry Harriet, I misunderstood, I must be getting old, silly me!
Let's get rid of the easy bit first, yes, costs of sale means solicitors and estate agents costs as you surmise.
You have, I trust, declared the net rents received each as income? The following items of expenditure can, according to Which, be deducted to derive a net rent:
'Water rates, council tax, gas and electricity
Maintenance and repairs to the property (but not improvements)
Contents insurance
Interest on a mortgage to buy the property
Costs of services, including the wages of gardeners and cleaners
letting agents fees
Legal fees for lets of a year or less, or for renewing a lease of less than 50 years
Accountant’s fees
Rents, ground rents and service charges
Direct costs such as phone calls, stationery and advertising for new tenants
The expense should be incurred wholly and exclusively as a result of renting out your property.'
From your 75K of gain each, each one of you may deduct 11K Annual Exempt Allowance (AEA) [it was 10.9K last tax year]. It is a pity you did not occupy the house after purchase as had you done so you would have been entitled to Lettings Relief of up to 40K instead of AEA. The balance of say 64K is chargeable to GGT at 18% or 28% or a combination of the two rates depending on individual's incomes including any share of the gain in the year of sale. Each siblings exact tax position will thus differ.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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