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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15882
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have just sold my second house and do not know what to do

Resolved Question:

I have just sold my second house and do not know what to do regarding the capital gains tax, how or when to pay it and how much it would be?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

I'm taking a look at this now.
Customer: replied 1 year ago.

Bought for £35000

Sold for £170000

Married

Wife not working

Expert:  TonyTax replied 1 year ago.
Hi again.

If you let me have the following information, I'll do some calculations for you:

1 The month and year you bought the property.

2 Was the property ever your main home? If so, let me have details of when you moved into it and out of it (months and years).

3 Has the property ever been let? If so, please let know the month and year the property was first let. If the letting ended let me know when (month and year).

4 Was the property always in joint names?
Customer: replied 1 year ago.

The house was purchased in 1985

It was an ex council house occupied by my parents, I lived there 1952 - 1972.

Bought by my wife an I as our pension fund.

My parents lived there, rent free.

My brother has bought the house and he, his wife and my father now live there.

Expert:  TonyTax replied 1 year ago.

Thanks.

Can you just confirm that you and your wife bought the house in 1985 and your parents lived there for the rest of their lives. How old were each of your pareWhen did the house cease to be occupied by your parents? Was it sold to your brother at the full open marlet value? If not, what was the full open market value?

Expert:  TonyTax replied 1 year ago.
My last post seems to have come out wrong. I've modified it as some of your information didn't appear until just now.

How old were each of your parents in March 1988? When was the property sold to your brother and was it sold to him at the full open market value? If not, what was the full open market value?
Customer: replied 1 year ago.

My wife and I bought the house.

My parents were 64 in 1988.

My parents have always lived there, Mother died May 2015.

Sold to my brother for full market value.

Expert:  TonyTax replied 1 year ago.

Thanks.

Leave this with me while I draft my answer. It will take a while so please bear with me.

Expert:  TonyTax replied 1 year ago.
Hi again.

Take a look at the notes starting here.

If one or both your parents met the definition of a "dependent relative" as set out from CG65550 to CG65577 then you can claim exemption from CGT for the whole gain under the part of the main residence rules which deal with the purchase of a property for a dependent relative.

If you don't consider that either of your parents met the dependent relative definition, then each of you and your wife will have a capital gain of £67,500 (£170,000 - £35,000 / 2). You can claim for the costs of purchase and sale such as legal fees, stamp duty, survey fees, selling agent fees etc) which will reduce the gain further.

The first £11,100 of gains made by an individual in the 2015/16 tax year are tax free so that will leave each of you with a net taxable gain of £56,400 (£67,500 - £11,100). The following applies to each of you and your wife individually:

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, 2015/16. 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%.

You will each need to report the gain in a self-assessment tax return after 5 April 2016. You can register for self-assessment here. If any CGT is due, it will be payable on 31 January 2017.

I hope this helps but let me know if you have any further questions.
Expert:  TonyTax replied 1 year ago.
I have to go out for a while but will be back to answer any follow up questions you may have in about 30 minutes.
Customer: replied 1 year ago.

Sorry for the delay, we have just become grandparents.

I am confused over the 'dependent relative'.

We bought the house as a pension fund, but it was also agreed that my parents could stay there rent free, so they did not have to go into a home.

My father has been a 'blue badge' holder for over 15 years due to bad back problems (compacted vertebrae and metal rods inserted) and had a leg amputated approximately 7 years ago. He retired over 30 years ago.

My mother was first diagnosed with cancer 6 years ago and as I said died May of this year.

Are these grounds for dependent relatives?

Regards

Expert:  TonyTax replied 1 year ago.

Congratulations on becoming grandparents.

Only you can decide if there is a possibility of a valid claim for dependent relative relief based on your parents ages and health at 5 April 1988. Take a look at CG65550, CG65560, CG65570, CG65575 and CG65577. The conditions for a successful claim have to been in place by 5 April 1988.

You said earlier that your parents were 64 in 1988 which is unfortunate as being 65 as at 5 April 1988 is a qualifying factor on its own. Choosing not to work between the ages of 55 and 65 is not a qualifying factor but being ubable to work between those ages is.

You have until after 5 April 2016 to decide whether to make a claim for DRR via your tax returns or not so there is no rush.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15882
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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