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taxadvisor.uk, Chartered Certified Accountant
Category: Tax
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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My father-in-law purchased a the family home 28/11/75 for

Resolved Question:

Good afternoon,
My father-in-law purchased a the family home 28/11/75 for £13,750
For the majority of the time used as main residence with short period of letting.
Chartered valuations are: 1982: £38,000 2/11/15 = £220,000
Father-in-law moved out after re-marrying and bought another property and let the family home for 79mths and then transferred the equity to my wife on 14/6/16.
My question is should the father-in-law have informed HMRC regarding the transfer and what tax liability could there be? (if he does nothing and dies and tax is due would the Trustee (me) be responsible to settle any debt?
Secondly if say my wife decides the sell her property in say the next 2 years what tax liability would there be for her - retired non tax payer.I have a second question (shorter) on a similar topic If I may add....
My father transferred equity of his house to me and now we are joint tenants on 20/3/13
He is unlikely to survive due to terminal cancer another 2 years.
Valuations (rightmove) are £280,000 at time of transfer and £350,000 today - but if refurbished could be worth near £400,000.
Could you advise on my tax liability if house is sold in the next few years (Retired base rate tax payer). Currently live in main home with my wife as joint tenants.
Submitted: 20 days ago.
Category: Tax
Expert:  taxadvisor.uk replied 20 days ago.

Hello and welcome to JustAnswer. I am here to help you. I am reviewing your question and will respond to you shortly.
Many thanks

Expert:  taxadvisor.uk replied 20 days ago.

Thank you for your question..

Please advise (father-in-law property)

- what was the property valuation when your father-in-law transferred his property to your wife on 14 Jun 2016

- what is this property used as .. main residence or second home

Please advise (your father's property)

- who is we in this statement (My father transferred equity of his house to me and now we are joint tenants on 20/3/13)

- is he still living in the property. If so, is he paying any rent to you

- are you living in the property or do you live in another property with your wife

Many thanks

Customer: replied 20 days ago.
Transfer began November 2016 and was £220,000. Solicitors and land registery took until 14th. June 2016 to complete.
Property now used as second home.My fathers property - transferred to me (Son and next of Kin) as joint tenants.
Father still living in property but pays no rent - not sure I understand the question as we are joint owners.
I live in a separate property with my wife as main residence - again as joint tenants
Expert:  taxadvisor.uk replied 20 days ago.

Thank you for your reply..

As the property was your father-in-law's main residence for most of the period of ownership, he would claim private residence relief for the period the property remained his main residence. He would also claim additional relief for the last 18 months of ownership as the property being transferred was his main residence at some point during the periodd of ownership.

Finally, he would be able to claim letting relief for the period the property was let and this relief has a maximum limit of £40k.

Period of ownership from Apr 1982 to Jun 2016 is some 411 mths and period let is 79 mths. Based on this period covered for private residence relief is 350 mths. gain covered by PRR is (220,000-38,000) = 182,000 x (350/411) = 155,000. gain not covered by PRR is £27,000 and this would be covered by letting relief.

There is no CGT payable on transfer of property to your wife. You should nevertheless report the gain on his tax return 2017 and claim reliefs as outlined.

Now coming to your father's property that is jointly owned by you and him. The fact he still lives in the proeprty and is not paying any rent for the 50% he does not own, the gift of 50% is deemed "gift with reservation" and the gift will still be included as part of his estate for IHT purposes.

More information on this can be found here under Gifts with strings attached

https://www.which.co.uk/elderly-care/financing-care/gifting-assets/343064-legal-transfer-of-property

and here under giving away a home before you die

https://www.gov.uk/inheritance-tax/passing-on-home

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

Customer: replied 20 days ago.
Thanks for the swift reply.
Regarding my father-in-laws property could you comment on the second question regarding my wife's tax liabilities if sold in the next 2 years (retired non tax payer, second home). Are there any tax efficient ways to minimise this?Fathers property - to clarify as this is deemed a gift with reservation 100% not 50% of the valuation would count towards IHT?
Also when sold would I have a CGT liability based on value when I became joint tenant or value when I became sole owner from the final selling price....
Thanks for your patience.
Stuart
Expert:  taxadvisor.uk replied 20 days ago.

Thank you for your reply.

Your wife's chargeable gain would be the difference between the selling price and the valuation at the time of transfer. This being a second home, there are no reliefs available. She would claim the gains annual allowance against the chargeable gain and the rest would be taxed at CGT rate of 18%, 28% or a combination of both depending on her total income including the gain in the tax year of sale..

You could move out of your current home and make this home your main residence for at least 12 months to mitigate CGT.

As far as your father's property is concerned... 100% of the valuation would count towards his estate for IHT purposes.

Your CGT would be based on difference between the sale price and valuation when you were granted 100% of ownership.

I hope this is helpful and answers your question.

Customer: replied 20 days ago.
Sorry one last question,
On my father-in-laws property signed over to my wife will any major renovations since transfer off set the chargeable gain?
Many thanks
Expert:  taxadvisor.uk replied 20 days ago.

Thank you for your reply.

Major renovations of a capital nature (improvement to the property and not general upkeep of the property) would be allowable against the chargeable gain.

I hope this is helpful and answers your question.

taxadvisor.uk and other Tax Specialists are ready to help you
Expert:  taxadvisor.uk replied 20 days ago.

I thank you for accepting my nswer.

Best wishes.