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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I'm hoping someone can help me with my question please -

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Hi, I'm hoping someone can help me with my question please - sadly my mum passed away unexpectedly last year and her home was left to me. It is a shared ownership property with my mum owning 50% and a housing association owning the other 50%. The housing association has agreed to sell me the remaining 50% which I am hoping to buy and may eventually rent it out. Upon looking into this further I am a little concerned and confused about what would happen regarding capital gains tax if I was to sell it in the future (if I did rent the property out or even keep it as a second home regarding tax). Would I pay capital gains tax on the 100% value of the home or would there be some consideration that 50% of the property was inherited? For example, say the house is worth £100,000 - so I already own £50,000 worth of the home and I get a mortgage for the remaining £50,000 then in the future I sell the house for £120,000, would I pay capital gains tax on the £20,000 increase from what it was worth when I took out the mortgage or would I pay it on the £70,000 over the £50,000 mortgage that I took out/the price I paid for it? I just do not want to have to pay capital gains tax on the 50% that my mum worked hard to pay for.
Also, are there any other tax considerations on buy to let properties? I understand that rules are changing so that any income from renting out a property is included with your other income and so this would likely push my husband into the higher tax bracket if we were to get the mortgage in a joint name. Is there any way to have rental income included in my tax return only as I work part time and would not be pushed into a higher tax bracket.
In addition, if it falls in to your remit - could you advise on the best way to purchase this remaining 50% of the property please. With a buy to let mortgage, a second home mortgage (I don't think I will be renting it out straight away and I am concerned that the housing association may have a problem if I go to them with a but to let mortgage) or a secured loan or other means.
I apologise for the rambled, basic question - I just haven't the first clue when it comes to such things. Thanks in advance for any help that can be offered.
Submitted: 5 months ago.
Category: Tax
Expert:  TonyTax replied 5 months ago.

Hi.

You inherited your mother's half of the property and the "cost" of that for CGT purposes is whatever it was worth when your mother passed away. If you buy the other half of the property, whatever you pay for it will be added to the "cost" of the half you inherited to give you the full cost of the property for CGT purposes. You can make gains of £11,100 tax free in any one tax year. When you inherit assets, simply because you didn't pay for them does not mean they have zero cost for CGT purposes. Using the figures you provided, you would make a gain of £20,000 of which the first £11,100 would be tax free.

Rental income has always been taxable so I don't know what you read which suggested otherwise. If the property stayed in your name, all the rental income would be yours for tax purposes. If the property was in joint names, it would be split on a 50:50 basis unless it was actually owned in proportions other than 50:50 and you informed HMRC on a form 17. Whose name the mortgage is in is irrelevant as far as the ownership is concerned, though the lender may want your husband as a part owner as security.

I cannot advise you how to buy the half of the property you don't own as I'm not allowed to do so.

I hope this helps but let me know if you have any further questions.

Customer: replied 4 months ago.
Hi, thank you for answering my question and sorry it has taken so long to reply. I think I understand, as I said I am not very good with these things but just so I know I am clear in my mind can you confirm my understanding is correct please. If my mums share of the property was worth £55,000 when she passed away and I pay £50,000 for the remaining 50%, the total cost for CGT purposes is £105,000. So if I then sell the property for £120,000 in the future, I would pay CGT on £15,000 and presently £11,100 of that is tax free anyway. So in my mind, the money my mum put in to her home is protected from CGT as it is only anything over its value at the time of her death that is taxed. Is this value the value that was declared during probate?
Something I meant to ask last time was when calculating the gain made on the property, I had read that you can offset some costs against the gain - would one of these costs be early redemption fees from a mortgage?
Expert:  TonyTax replied 4 months ago.

Your understanding is correct. If the probate value of the half of property you inherited from your Mother is £50,000, that is the cost of that half for CGT purposes. Add in the cost of the other half at say £50,000 and your total cost is £100,000. As you say, only the growth in value from when your Mother died is taxed in addition to the growth in value of the second half over what you paid for it. You cannot claim the mortgage redemption fee I'm afraid. There is a tax case on the subject here.

TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15755
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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