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TaxRobin
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I live in one property and my name are on the deeds of my mother's

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I live in one property and my name are on the deeds of my mother's house. How might I avoid capital gains if I were to sell my mother's house?
Submitted: 2 years ago.
Category: Tax
Expert:  TaxRobin replied 2 years ago.
Hello and thank you for allowing me to assist you.
If the property was occupied by a dependent relative you may not have to pay.
The conditions for relief are:
• the dependent relative must occupy the dwelling house rent free and
without any other consideration
• only one dependent’s dwelling house can qualify at any one time
• a husband and wife or civil partners who are living together can claim relief for only one such dwelling house between them
• the dwelling house must be the sole residence of the dependent relative.
Your mother would need to be either widowed, or living apart from her husband, or is a single woman in consequence of dissolution or annulment of marriage.
If the residence was acquired after 5 April 1988 you cannot claim the relief unless the conditions for relief were met by that date (widowed, or living apart from her husband.....)
Customer: replied 2 years ago.

Full details regarding my circumstances are:

After previously living in rented accommodation with my parents and younger brother, we moved in to a property in Colerne, Wiltshire in 1993. We agreed that I would pay 50% of the deposit and the mortgage and my parents would pay the other 50%. The cost of the property was around £55,000. My father did not want to worry about a mortgage as he was 58 at the time and so the mortgage and deeds were only taken out in my name.





My brother did not and has not paid anything towards the mortgage, but still lives with my mother today (both rent free). The property is currently likely to be valued at between £200,000 and £250,000.






In 1997, my mother was able to pay off the remainder of the mortgage from an inheritance and I calculated that this resulted in my parents paying towards two thirds of the cost of the house.






In 2002, I moved and bought a one bedroom property in Basingstoke.






My father died in July 2004 and my mother inherited all of his estate.






In 2006, I sold my one bedroom property and bought a three bedroom property also in Basingstoke with my girlfriend. We married in August 2009.






I have recently made a will for myself and have drafted one for my mother. It is her intention that her estate is split jointly between me and my brother. It is likely that the house would be sold at this point, but I have recently become aware that as things stand I would be liable to capital gains tax on this. The most recent advice I recived was that as I lived there for a while I will be able to reduce this partially by Principal Property Relief.

Please could you advise what options I have to reduce any tax paid on the sale of my mother's house. My date of birth is 26/8/66, my mother's is 22/6/38.


Expert:  TaxRobin replied 2 years ago.
Hello and thank you for all the specific information.
I responded based on a general possibility.
Unfortunately you do not meet the requirements to have relief on all the gain because the home has not been your only or main residence throughout your period of ownership.
It appears you own the house as the deed is in your name. When sold you would calculate the proportion of the gain eligible for relief by multiplying the gain by a fraction equal to the periods of occupation divided by the period of ownership.
The percentage would be used by you to see what percentage of gain is not taxable.
Customer: replied 2 years ago.

As I understand it, as things stand today I would currently pay 40% capital gains less 9/21 for the years I lived there. For example, £200k x 40% = £80k less 9/21(£34.3k) = £45.7k liable for capital gains. Am I able to transfer the deeds fully or partially to my mother and/or my brother? If so, at what point in the future could it be sold on without it being liable to capital gains tax?

Expert:  TaxRobin replied 2 years ago.
If you were to transfer the deed to a person that actually lived in the home and owned it they could use the PPR.
You would be treated as if you had disposed of the property. You would be allowed the Potentially Exempt Transfer (PET.
Normally you would pay CGT on the difference in the value now and your cost in the property.
But if you gift under PET you would potentially avoid IHT and CGT.
Customer: replied 2 years ago.

Thanks, ***** ***** like I am getting closer to the answer. I think that the best option is to gift under PET to my mother, but am not sure of the full implications. If I did this and she was to pass away leaving my brother and myself as joint beneficiaries, would I be entitled to the full amount (i.e. 50% of her estate) without having to pay any CGT or IHT (assuming the estate does not exceed the IHT threshold)? I was led to believe that there was a 7 years rule if property was passed over as a gift?

Expert:  TaxRobin replied 2 years ago.
The PET is if you do not pass not the receiver.
You would claim the value on the date your mother passed and that would be closer to sell price. This could mean no CGT to pay because no real gain.
Customer: replied 2 years ago.

Sorry, I do not understand your answer, please could you explain this in more detail.

Expert:  TaxRobin replied 2 years ago.
The PET on the gift you make would be on you and if you pass prior to 7 years. After 7 years that taxable potential is gone.
You would be inheriting after you mother passes. You would claim the value on the date your mother passed and that would be closer to sell price. This could mean no CGT to pay because no real gain.
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Experience: International tax
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