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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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My mother died on 2 February 1999 and I inherited her half

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My mother died on 2 February 1999 and I inherited her half share of the bungalow that she lived in with her sister. They owned the property in equal shares as tenants in common. The half share of the property for probate purpses at that time was £62,500. My mothers estate was small and well within the inheritance tax threshold. The half share of the property was transferred in to my name in 2002 when it was valued at £100,000. My elderly aunt continued to live in the property until 24 January 2014 when she passed away aged 93. For the last 5 years of her life she required 24 hour care which was provided by her son who moved into the propertyand myself. I lived there for the last 18 months of her life to provide the personal care she required but I did not allocate it as my principal home as I own a half share in another property as tenants in common with my partner.
My aunt's son (my cousin) has inherited his mothers half share of the property and the property was valued for probate in February 2014 £287500 (half share £142750). My cousin is still living in the property and I am happy for him to continue to live there as we both have a sentimental attachment to what was our family home. The property is in need of repair requiring asbestos removal central heating, new windows rewiring etc but we are unsure whether we can afford to have these done as I have been advised that if I give my half share to my cousin I will have to pay a large capital gains tax bill. Can you advise me if that is the case please? Would it be exactly the same as if we sold the property? If I have the property to him and paid a capital gains tax bill and died within the next 7 years would the value still be added to my estate and eligible for inheritance tax thus causing me to be taxed twice? Sorry for such a long and garbled question but It is a rather complicated set of circumstances that we find ourselves in. Many thanks for any guidance yu can offer. I don't really know where to go locally for advice.
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.

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

As I understand from your statement, you have three questions:
(1) I have been advised that if I give my half share to my cousin I will have to pay a large capital gains tax bill.
(2) Would it be exactly the same as if we sold the property?
(3) If I have the property to him and paid a capital gains tax bill and died within the next 7 years would the value still be added to my estate and eligible for inheritance tax thus causing me to be taxed twice?

I will respond in this order
(1) If you were to give/transfer your share of the property to you cousin, it will trigger a chargeable gain as you never had the property as your main residenec albeit you lived in it for some 18 months.

The gain will be difference between the probate value at time of death and the current value .. so your share of the gain will be (142,500-50,000)=£92,500.
You would claim your gains allowance against it and the rest will be charged at CGT rate of 18%, 28% or a combination of both depending on your total income in the year of sale/transfer. Worst scenario is a CGT of (92,500-11,100)=81,400 x 28% £27,792

I have assumed the property value was £100,000 when you got half share of it and that £100,000 was not the value of your half share. CGT tax would be different on this figure.

(2) CGT would be the same whether you sold the property or gifted it to your cousin.

(3) CGT and IHT are two separate taxes. If you were to gift property to your cousin it would be regarded as a potentially exempt transfer and the seven year rule applies. The gift would be the value of your share of the property less CGT suffered on transfer.

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.

The valuation at my mothers date of death 2Feb 1999 was 125000(half share £62500) but was not transferred into my name at land registry until 12 December 2001 when it was valued at £200000 (half share £100000) as shown on the title. Which figure would be used?

Having paid the capital gains tax on transfer,there could be in heritance tax payable on the valuation at transfer less the capital gains tax paid if I died within 3 years. Is my understanding correct?

I think it makes sense for me to leave the property in joint names and bequeath my half share to my cousin hoping that by the time this happens government will have raised inheritance tax thresholds to a more realistic level.

Expert:  taxadvisor.uk replied 2 years ago.
Jeannette, thank you for your reply.

You would use the valuation figure at the time of transfer i.e £100,000 as your base price and the gain will be the difference between this price and the valuation at the date of transfer, at a future date.

Your understanding on IHT payable if death within 3 years of PET is correct.

I hope this is helpful and answers your question.
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