The house was let and she maintained the rent as income for herself and therefore the income from the house was declared on her tax return and she pad income tax on it.
So what do we do now if the wrong person has declared it ? Also will capital gains be payable as well upon the house sale as and when ?
Both write to HMRC to their respective offices explaining the error. There should be no penalties imposed as there has been no loss of Revenue.
I have explained the IHT position in my original response. The situation there is in the seven year time zone. If she survives that long then there will be no add back to her IHT account, or it may be tapered if she passes on earlier.
On sale there may well be a CGT bill on any gain made. The gain is the difference between acquisition and disposal price. The latter is the net sales price whilst the former is the purchase price plus purchase costs plus any improvements made to the property. There is an Annual Exempt Amount of 11.1K to offset this and as the property has been let Lettings Relief may be available up to 40K in place of the AEA, but only if the owner, your son, has lived in the house before the letting started.