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JGM, Solicitor
Category: Law
Satisfied Customers: 12198
Experience:  30 years as a practising solicitor.
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Can I speak to someone regarding capital gains tax on

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Hi, can I speak to someone regarding capital gains tax on inherited properties?

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Customer: replied 1 year ago.
My parents inherited my grandfathers house 15 years ago and myself and my wife having been living in it for the past 6 years. We would now like to renovate the property however were unsure weather or not my parents or us would be liable for capital gains tax. We're not purchasing the property from them and no money is changing hands as they are only transferring the deeds over? Thanks
Customer: replied 1 year ago.
Hi, please can you advise how long it will take to get an answer? Thanks, Graham

As your parents are transferring the house to you and your wife, they will be liable for capital gains tax based on the value at the date of transfer less the value at the date they acquired the house from your grandfather's estate. Assuming the house is presently in the name of both of your parents, they will have an annual allowance totalling £22,200 which can be deducted from any increase in value before the tax rate is applied. So for example if they acquired the house at a value of £100000 and it is now worth £180000, they will pay CGT on the increased value of £80,000 less £22,200 = £57,800. So they each have a net gain of £28,900. The basic CGT tax rate is 18%. If either of them are higher rate taxpayers they will pay CGT at 28%. Neither you nor your wife will be liable for CGT and you don't own the asset. I hope that helps. Please leave a positive rating so that I am credited for my time.

Customer: replied 1 year ago.
Hi, thank you for your reply however as there is no money changing hands and my parents aren't actually gaining financially by transferring the deeds in to our names (as there actually reducing their net worth effectively) as its essentially a paper based exercise 1. how is the capital gains calculated in this instance do they still have to pay it or would they have to wait until we sold the property for actual money at which point it would be calculated? and 2. If it can't be paid by my parents what happens? It doesn't seem logical to me that you have to pay Capital Gains on money you haven't actually had or gained from? The CGT that would be payable based on your previous reply would be roughly £120,000 which won't be viable and couldn't be paid. Thanks, Graham

The CGT is payable based on the VALUE of the asset transferred less the VALUE at acquisition. That applies whether money changes hands or whether the asset is gifted for no money. If your parents can't fund the tax then they should not make the transfer. There is thing called gift relief but it only applies to business assets, not to the situation that you describe.

Customer: replied 1 year ago.
OK, however there must be an alternative solution? I understand what you've outlined regarding the value of the asset and the difference between the two however I still don't understand where (I assume HMRC) expect the money to actually come from in this scenario? In theory if we purchased the property then I can see how the money would be split out however by definition of CGT (i.e.the profit realised on the sale of an asset that was purchased at a cost amount that was lower than the amount realised on the sale) there is no actual sale or gain here though? If my parents transfer ownership but don't actually gain from the process there simply paying CGT on an asset they've actual not sold and/ or made profit on? Thanks, Graham

Your analysis is entirely correct. If they elect to gift an asset they will pay CGT in the usual way even if they make no money. That is because CGT is paid on a DISPOSAL of an asset even if the disposal is not a sale. The only exceptions are transfers between spouses and the gift of business assets. In your scenario there is no alternative solution.

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