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bigduckontax
bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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My mother is planning to sell her rental property and

Customer Question

Hi
My mother is planning to sell her rental property and gift the money to me so I can buy a property of my own. She also has a property of her own which she lives in. Her property should fetch £170000 what tax will she have to pay on this money? as she is not gaining anything from the sale will she still have to pay capital gains? She was given this property by her father who is now deceased in 1999. Look forward to your response
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer and happy to be able to help you with your question. The news I have to impart is not good, however. She will be liable for Capital Gains Tax on the gain she makes on the property. The gain is the difference between the net disposal price [ie after selling costs] and the aggregate of the probate value as per her father's estate plus any improvements eg installation of double glazing, central heating, extensions etc, but not routine maintenance which is allowable against rental income for Income Tax purposes. She will be entitled to her Annual Exempt Amount of 11.1K to offset the gain. As she never lived in the property she has no entitlement to Lettings Relief [available up to 40K]. The gift to you creates a Potentially Exempt Transfer (PET) in your mother's Inheritance Tax (IHT) computation. PETs run off at a taper over seven years and in the event of the decease of the donor within that period are added back to her estate for IHT purposes. PETs are the first to suffer IHT and in the event of her estate being insufficient to meet the tax on the PET it cascades down to the beneficiary for immediate settlement. IHT does not, of course, kick in until a deceased's estate exceeds 325K and there is always a possibility that your late father may have unused IHT allowance which can be added to your mother's making a possible 650K tax free. Inter spousal financial activities are outside the scope of IHT I do hope that I have been able to shed some light on the position..
Customer: replied 1 year ago.

Hi I may not have explained myself very well. My grandfather gave the property to my mum in 1999. He then died in 2008 so the property was not part of his estate. My mothers husband died 15 years ago. Her property that she lives in is worth £270000 at current market rates and her rental property is worth £170000 there have been no major improvements made on the rental property. Can you clarify what would be the amount of money approximately liable for capital gains please if the selling costs were 2%. I understand the INT I think but just to be sure-- I would be liable for the tax payable on any values above the 325,000 threshhold should she passaway within the next seven years.

Expert:  bigduckontax replied 1 year ago.
Right, then you substitute the current market value as at the date of transfer as the acquisition price. You may have to seek the assistance of the Valuation Office Agency, part of HMRC manned largely by chartered surveyors and the like, whose main task is to assess properties for council tax banding and business rates. They are notified automatically of every sale so have a very good working data bank. I cannot calculate any CGT liability without this figure as the gain cannot be determined without it.
You are not liable for any IHT on the decease of your mother save in respect of the PET if her estate is insufficient to meet the tax thereon. IHT is payable from the deceased estate not the beneficiaries save in the unusual PET situation of which I have informed you. Once the seven years expire the PET is extinguished.
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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