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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15915
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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My mother made over her house to my brother and me in 1997.

Customer Question

Hi
My mother made over her house to my brother and me in 1997. She continued to live there alone. She died in 2013 and we let the house for a year then sold it. My brother has said he is not going to declare the rental income for tax and is not going to declare the sale of the house in next years tax form. I Intend to declare the rent income and sale.
My question is, how likely is it that hmrc will find out about my brothers non payment. Do they ask about details and address of the property. Do they realise I am getting only half the rental and sale price and look into the other half. I don't want this to be a cause of conflict with my brother. Thanks for your help
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. HMRC have access to all property transaction information in the UK and the likelihood is that at some point, your brother will be sent a letter asking him why he has not reported the disposal of the property in a self-assessment tax return. It's not definite but highly likely. They may also find out that the property has been let, not least from your declaration. You would tell HMRC in your return that you owned a 50% share in the property and they might ask you who owned the other half. HMRC run a "Let Property Campaign" to encourage those who have let property and not disclosed the income in previous years to do so on favourable terms. They put much resource into tracking non-disclosing landlords. The cost of the property for CGT purposes for each of you is 50% of its value when it was gifted to you in 1997. As your mother continued to reside there and assuming she paid no rent, the gift was a gift with reservation of benefit. That means its value when she passed away should have been included in her estate for Inheritance Tax purposes. You can read about gifts with reservation of benefit here. I hope this helps but let me know if you have any further questions.
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Expert:  TonyTax replied 1 year ago.
Hi.
I'm just following up to find out if my answer helped or if you have any further questions.
Customer: replied 1 year ago.
Hi Tony
If we decide not to pay tax and one of us dies, and at some point in the future payment is demanded, do you know if the full payment would fall on the surviving brother, or if the spouse (or estate) of the deceased brother would have to pay half.
Thank you.
Expert:  TonyTax replied 1 year ago.
If HMRC find out that there is a gain which should have been disclosed, they may go after the deceased estate. They certainly would not come to you or anyone else. A tax liability is an individual one and you should each declare your respective shares of the gain.
There is an outside chance that whoever inherits may be pursued but unless there was some cash lying around, HMRC would probably have to write any unpaid liability off.
Customer: replied 1 year ago.
Hi Tony,
I am thinking of how to keep my brother out of tax scrutiny. Could I declare ALL the rent paid on the house on my tax form and so pay all the tax?
Does hmrc normally request documentation, bank statements etc? In which case they would see the situation but I guess it may not matter to them as long as the tax is paid? Thanks
Richard
Expert:  TonyTax replied 1 year ago.
HMRC don't ask to see any of the documentation as a matter of course unless they open an enquiry into a tax return. There is a box on the rental pages which you are supposed to mark with an "X" if a property is let jointly but you and your brother are allowed to decide how the rental income is split for tax purposes so as long as he didn't receive any of it, you won't have a problem. The disclosure of the gain should be based on your ownership proportions. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Thank you. That was very helpful.
If I decide to pay all the CGT on the house, are hmrc more likely to investigate as it would be quite a large sum as far as I can see. Do they calculate the tax or allow me or a representative to do it. If they did it they would see my brothers name on the deeds I suppose.
The house was sold in July 2015. Are there any time limits in declaring the sale of a second property, or is it just declared in the normal way in the tax return. In other words I would have up to Jan 2017 to declare it. Thanks.
Expert:  TonyTax replied 1 year ago.
HMRC investigate cases of all sizes. It's a game of chance to a certain extent. The house was sold in 2015/16. You need to report the disposal in a tax return for 2015/16 which has to be submitted to HMRC by 31 January 2017 if you complete it electronically or by 31 October 2016 if you complete it on paper and want HMRC to work out the tax. They won't work out the gain for you.

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