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bigduckontax, Accountant
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My ex-wife and her sister were left their mother's house around

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My ex-wife and her sister were left their mother's house around four years ago. Since our daughter wanted to buy the house, but could not do so immediately, my ex raised a mortgage on her own residence to pay off her sister with her half, and our daughter moved in to the house. She has not being paying rent, but she has been making her mother's mortgage payments on her residence. (The mortgage she took out to buy out her sister).
Now, three years later, she is still unable to buy it, so she is moving out and the house will be sold. The growth in value since probate is around £300,000. Is there any way of mitigating the Capital Gains Tax liability? (Substantial improvement work has been done on the house, but there are no receipts).
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Since the house was left to two siblings they own the residence as what is legally termed a Joint Tenancy, half each. Thus the pair of them will share the gain 50/50, that is 150K each. As neither occupied the premises Private Residence Relief (PRR) does not apply so each will be liable to Capital Gains Tax (CGT) on the full amount less their individual Annual Exempt Amount (AEA) of 11.1K, Thus 138.9K will be liable to CGT. However all is not lost. The gain is calculated from the net disposal price ie after deduction of selling costs including advertising less the acquisition price. The latter is the purchase price plus purchase costs including Stamp Duty Land Tax plus any improvements eg installation of double glazing, central heating extensions etc, but not routine maintenance. The gain is taxed at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale. Someone should endeavour to get an accurate value of improvements. Mortgages do not come into the CGT computations. I do hope that my reply has been of assistance.
Customer: replied 1 year ago.
Sorry, Maybe I wasn't clear. The house was left to both sisters, but my ex bought out her sister soon after probate was approved, so she owns it solely. Stamp duty does not apply, agent's and solicitor's costs are negligible and there are no bills for the improvement work as it was done by my daughter's boyfriend (a builder) in lieu of rent. Could you think again please.
Expert:  bigduckontax replied 1 year ago.
Well that does make a difference! Your ex presumably occupied it as her sole of main domestic residence. In that case PRR will apply and relieves any gain at 100%. As there is no CGT payable the lack of bills is an irrelevance as, indeed, are the improvements. If the occupation I have assumed is not the case please advise. The other sister is liable for CGT as I explained, but the gain will be the difference between the probate value and what you ex paid, less, of course, her AEA which is non cumulative and at the rate applicable as at the disposal date.
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Customer: replied 1 year ago.
You say that my ex presumably occupied it as her sole of main domestic residence. That's not what I said. Please reread my messages.
Expert:  bigduckontax replied 1 year ago.
Your final comment has only just been posted.

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