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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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my wife and sister were given their fathers house 10yrs ago

Customer Question

my wife and sister were given their fathers house 10yrs ago , providing he still lived in it until he died. it was all done legally and thinking they would avoid tax. he died about 6mth ago and the house was sold for £230.000,to be divided x2. quite simply , will they have to pay cgt and if so , how much. both sisters are retired with a pension. thank you H
Submitted: 4 years ago.
Category: Tax
Expert:  TonyTax replied 4 years ago.

Was the gift made by your father in law? Did he pay a full market rent to your wife and her sister? Can you tell me how much the house was worth when it was given to them. Have either of them lived in the property since they have been joint owners?
Customer: replied 4 years ago. was a free.....approx. 275.000.....neither have lived there. H

Expert:  TonyTax replied 4 years ago.

Since your father in law continued to live in the property after giving it away, he made what is called "a gift with reservation of benefit". As he paid no rent, the value of the house at the time of his death has to be included in his estate for Inheritance Tax purposes. Take a look here and here for some information on gifts with reservation of benefit.

Notwithstanding the fact that the value of the property at the time of his death remains in your father in law's estate for IHT purposes, your wife and her sister acquired the property when it was worth £275,000 so they each have a cost for Capital Gains Tax purposes of £137,500 for their respective half-shares. As the property was sold for less than its "acquisition cost", they have each made a capital loss of £22,500 (£115,000 - £137,500) so will have no CGT to pay.

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