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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4943
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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My brother and I inherited my mother's house around four years

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My brother and I inherited my mother's house around four years ago. The value was agreed for IHT purposes at £245k. It remains in our joint names. We have let it out in the meanwhile. We intend to sell it this year and let's say will receive £345k net of sale costs. The £100k profit will of course attract a CGT charge.
Can we minimise that liability:
(i) by transferring the property to our joint names. Does the estate have its own CGT allowance still? If so could we notionally transfer it for £256k, against a 100% mortgage granted by us to the estate to secure the monies.
(ii) Could we instead transfer it into the names of ourselves and our respective wives to make use of four personal allowances.
(iii) Is it advantageous to transfer to those among the four who are base rate tax payers.
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.

Hello and welcome to the site. Thank you for your question

Please clarify for me ..

Is the property currently in your names (you and your brother) as recorded at Land Registy or is it held in trust?

I don't follow your point ....Does the estate have its own CGT allowance still?

Are you basic rate or higher rate tax payers?

Many thanks

Customer: replied 2 years ago.

Sorry there was a typo in the above.

I meant to say "the registered title to the property is still in my mother's name".

As for the estate's CGT allowance, which I would have thought is reasonably clear, does an estate have an allowance in the same way an individual does? In other words if the gain remains entirely within the estate and is £100k, can £11k of that be taken out of account?

Assume that I am a higher rate tax payer, that my wife has a fairly low income, and that my brother and his wife have taxable incomes of 40k and 25k, though if you think this is now getting too far into specific tax avoidance advice for the purposes of this site, I will understand.

Richard

Expert:  taxadvisor.uk replied 2 years ago.
Richard, thank you for your reply and for clarification.

As far as I can see from information given, the property was inherited by you and your brother at your mother's demise. The transfer of title is outstanding and would appear to be an administrative task from probate papers.

The estate would not have a capital gains allowance as the property is effectively yours.
Your base price for CGT purposes becomes £245k and the gain on sale would be chargeable to CGT after you and your brother avail the gains allowance of £11k.

YOu can mitigate CGT by transferring more than 50% of your share of the property to your respective spouses and then sell the property, to ensure that CGT rate applicable remains at 18%.

The gain is (100,000-44,000) 56,000 or £14,000 each.

My advise would be to make the transfers in current tax year and then dispose of the property in the following tax year to avoid any enquiry by HMRC.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 2 years ago.

Thanks for that I am a little concerned though that you suggest making the transfer to the family members in the same year as sale might attract an HMRC enquiry. It is either lawful, in which case we should have no concern about an enquiry, or unlawful in which case it is not.

Is there a difference in nature between a transfer to my brother and me than to spouses? Can we transfer to all four of us, which would probably be the most tax efficient way to use the allowances, if it is lawful, wouldn't it?

Expert:  taxadvisor.uk replied 2 years ago.

Richard, thank you for your reply.

What I am suggesting is lawful...it is common practice to have a time lag between transfer/sale of assets to spouse and then eventual disposal. The rationale is that transfers between spouses are tax neutral and there is no CGT implications on transfer. The recipient acquires it at the original cost and CGT is deferred.

HMRC don't like it because it mitigates tax payable.

You can transfer your share to your wife just before disposal, if you so wish.

You stated you inherited the property around four years ago. At the time of death you and your brother were to inherit it. You could have made a deed of variation to enable transfer to all four. There is a time limit to exercise/execute a deed of variation and this time limit is two year from date of death.

You may find information on deeds of variation heplful .. look at this link

http://www.ehlsolicitors.co.uk/how-we-can-help/services-for-the-individual/probate/deeds-of-variation/

I hope this is helpful.

taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4943
Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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