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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My parents and myself bought their council house in 1984. The

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My parents and myself bought their council house in 1984. The house ceased to by my main place of residence at the end of 1988. My mum died in 2004 and my father died March this year. I think the house was bought for £30K and we are hoping to sell it for £385K. My father in his will said his estate should be shared equally between myself and my brother What CGT would I be liable for? How much of the house value would be counted for Inheritance tax?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

What proportion of the house becane yours when you bought it jointky with your parents in 1984? Which month in that year do the purchase occur? Whose names went on to the title deeds? Is the house still in your late father's estate or has it been transferred into your own and your brother's names?
Customer: replied 1 year ago.

I assume we owned a third each. According to the deeds the sale took place in February 1984. I have just checked and all three names are ***** ***** deeds. When my mum died in 2004 we got a letter from nationwide to say the property is registered as joint tenants (myseld and my father) It has not been transferred yet. We are still waiting for probate to come through.

Thanks

Expert:  TonyTax replied 1 year ago.
Thanks.

Leave this with me while I draft my answer. It will take a while.
Customer: replied 1 year ago.

thanks - there seems to be a problem with justanswer when i put in my email***@******.*** it says this has been registered to another user. what can i do?

Expert:  TonyTax replied 1 year ago.
You will need to take that up with just answer as I don't get involved in admin issues. I answer tax questions and I'm in the process of putting my answer together.
Customer: replied 1 year ago.

ok thanks

Expert:  TonyTax replied 1 year ago.
Hi again.

I need one more piece of information from you. What was the value of the property when your mother died in 2004? Did you and your father split her share of the property equally?
Customer: replied 1 year ago.

Hi we estimate the value to have been approx £165k. We did not explicitly split the value of the property but can be assumed here? If my mums share went to my dad that is one assumption, split equally would be another. What would be assumed in this situation?

Thanks

Expert:  TonyTax replied 1 year ago.
Thanks..

Owning a property as joint tenants means that your father's share of the property will come to you automatically as you both owned the whole property. You will need to consult the solicitor as your father's will wanted it split between you and your brother. Take a look here and here for information on the rules around joint tenants and tenants in common.

If you owned a third of the property as a joint tenant February 1984, your original one-third share would have a base cost of £10,000, When your mother died in 2004, I'm assuming you acquired half of her one-third share with a base cost of £27,500, one-sixth of the value of the property at that time. You then owned half the property for CGT purposes as did your father. Your half-share was worth £192,500 when your father died in March 2015 as was his.

The probate value of your late father's share for Inheritance Tax purposes is £192,500 and that will pass to you or you and your brother as the base cost in proportion to your respective shares of your father's half-share depending on the legal situation. Either you will take full ownership of the property or it will be put into your name and your brother's names. You already own half so in the latter scenario, he will own a quarter of the property and you will own three-quarters. This will need to be thrashed out by the solicitor as I stated earlier because of the joint tenancy.

My own view is that you are the new owner of the whole property and you will need to make a gift to your brother if you wish to honour your father's will. That would probably be best done by selling the property and giving him some of the cash raised.

Of your gain, you will qualify for exemption from Capital Gains Tax for about 6.5 years worth of the gain (about 5 years due to your occupation of the property plus the last 18 months of ownership) out of 31 years of ownership. It's normal to calculate the exempt and taxable parts of the gain using months as opposed to years.

If it is decided that the property has to come to you because of the joint tenancy, then your base cost will be £230,000 (£10,000 + £27,500 + £192,500). If you sell it for £385,000, you will make a gain of £155,000 of which £32,500 will be exempt from CGT. Of the balance of £122,500, the first £11,100 will be exempt from CGT due to the annual CGT exemption leaving you with a net taxable gain of £111,400.

There are two rates of CGT, 18% and 28%. The rate or combination of rates that you will pay will be dependent on the level of your income in the tax year that the property was disposed of. If the sale occurs in 2014/15, one of the following scenarios will apply:

1 If the sum of your income and the net taxable gain in 2015/16 is £42,385 or less, then all the taxable gain will be charged to CGT at 18%.

2 If your income alone in 2015/16 is £42,385 or more in 2015/16, then all the taxable gain will be charged to CGT at 28%.

3 If your income alone in 2015/16 is less than £42,385 but greater than £42,385 when the net taxable gain is added, then part of the net taxable gain will be charged to CGT at 18% and part at 28%.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Thanks why would the last 18months be exempt?
Expert:  TonyTax replied 1 year ago.

Where a property have been your main home at some point during your ownership of it, you are given the last 18 months as an exempt period as you can read here. It allows people who move before they sell their previous home time to sell that home without a tax penalty.

It occurred to me that you might be able to claim dependent relative relief on at least part of your share of the property, ie the proportion owned by you as at 5 April 1988. You can read about that here. The definition of a dependent relative is here.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15840
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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