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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Capital Gains Tax Query My father died intestate in September

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Capital Gains Tax Query
My father died intestate in September 2006. The Deeds to the family home were in his name only. My mother had been living in it on her own and wished to continue living there. The legal position is that she and I [their only child] became tenants in common and became the owners in proportions 125 to my mother and 80 to me.
A Surveyor from Healy Simpson conducted a Valuation of the property in July 2007 and said it was worth £230,000
In 2009 Healy Simpson revised their valuation to £205,000
My mother died in September 2014, also intestate. A surveyor, Alan Wright, valued the house at £150,000 in October 2014 because it was in a poor state of repair.
I became the sole owner of the house [as per Official Copy of Register of Title dated 9th December 2014] which I sold in March 2015 for £225,000
My question is, which of these valuations should be used for calculating the Capital Gains Tax payable on the sale?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

You inherited 39% of the property with a probate value of £80,000 in 2006. You inherited the other 61% with a probate value of £91,500. Your base cost for CGT purposes is, therefore, £171,500.

As you sold the property for £225,000 in March 2015, you made a gain of £53,500. The first £11,000 of the gain will be exempt from CGT so the net taxable gain is £42,500.

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

Customer: replied 2 years ago.

I am not sure about that. The only explanation I could find in my paperwork is as follows: Under the intestacy rules my mum was entitled to a statutory legacy of £125,000 and the income derived from one half of the remainder. To quote my solicitor, because my mum continued living there, "... the Administrators propose that the statutory legacy of £125000 plus a proportion of the money held under the statutory trusts amounting to £80,000 be applied in respect of***** This would mean that the house should eventually be owned jointly between [mum] and the Administrators, [mum] having an absolute share in proportions 125 to [her]: 80 to the administrators who will hold their share under the statutory trusts" If this does not help, I can contact the solicitor and ask him to explain. Thanks, Sylvia

Expert:  TonyTax replied 2 years ago.

The rules of intestacy have changed since 2006 so I will look at the rules in 2006 and get back to you. It would be helpful if you could get the solicitor's understanding of what you received from the estate of your father.

Expert:  TonyTax replied 2 years ago.

Hi again.

Your mother was entitled to £125,000 when your father died intestate. She was also entitled to the income from half the residue. If there was no other asset other than the house, then she had a life interest in half of £80,000 which wasn't an income producing asset as it was tied up in the house. You were entitled to £40,000. So your immediate interest on your father's death was worth £40,000, the CGT base cost of your share.

Where an individual becomes entitled to a life interest in an asset, that asset becomes part of their estate when they die. Your mother appears to have had a life interest in £40,000 (£80,000 x 50%). When she died the property was worth £150,000. She owned 61% outright (£91,500 plus a life interest in 19.5% (£29,250). You owned the other 19.5% as of right under the intestacy rules. Therefore, your mother's share was £120,750 (£91,500 + £29,250) and that becomes the CGT cost of the 80.5% you inherited on your mother's death. Your total base cost for CGT purposes was £160,750 (£120,750 + £40,000).

You sold the property for £225,000 in March 2015 so you made a gain of £64,250. The first £11,000 of the gain will be exempt from CGT so the net taxable gain is £53,250. If any capital improvements were made to the property before its sale, you can add the cost of those to the base cost of £160,750. You can also claim the selling costs (legal fees, selling agent fees etc).

I'd run this by your solicitor to find out what they think. In effect, your mother was the life tenant of an interest in possession trust which ended on her death.

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