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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15975
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Would it be adviseable to move into our inherited home and

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Would it be adviseable to move into our inherited home and sell main home. How many years would we have to live in second home before selling to avoid capital gains tax?

The amount of any gain that would be taxable is dependent on the size of the gain, the length of the period of ownership, the amount of time you lived in the property and whether it was let. If you let me have the following information I'll do some calculations:

1 The month and year that you inherited the property. What was it worth when you inherited it? What is it worth now? Is it solely or jointly owned?

2 Has the property been let? If so, when was it first let (month and year)? If the letting ceased, when did it end (month and year)?

Customer: replied 3 years ago.

Inherited april 2003.
Jointly owned (husband and wife)

£265,000. valued at probate £165,000

Property has not been let.

Used solely by us as a holiday home.


Leave this with me while I draft my answer.
Customer: replied 3 years ago.

Good, we will await your answer.

Hi again.

You are sitting on a £100,000 gain, £50,000 for each of yourself and your wife. The first £11,000 gains made by an individual in any one tax year are tax free. So, if you sold the property now, you would each pay CGT on £39,000. You can take account of the selling costs in calculating the gain so the final taxable figure would be something less than £39,000.

I'm assuming that you did not elect for the inherited property to be treated as your main home within 24 months of iinheriting it. The gain made on the sale of a property is treated as having accrued evenly over the whole period of ownership which makes the calculations fairly easy.

The gain for the period the property was the main home of the seller is exempt from CGT as is the gain for the last 18 months of ownership where the seller wasn't living there. The remaining gain is taxable. If the property was let as well as having been the seller's main home at some point, letting relief will reduce the taxable gain by the lesser of:

1 £40,000,

2 the sum of the main residence gain and the gain for the last 18 months of ownership excluding overlapping months and

3 that part of the letting period gain not covered by the last 18 months of ownership.

You have owned the property for about ten years so if you sold it now you would have made about £10,000 profit per year of ownership. It you move into it for a short period to get 18 months of the gain as tax free, the tax office would almost certainly challenge your motives (they would say you are trying to avoid tax and not to make the property your home) and seek to tax all the gain. I would say that you would need to live in it for at least a year to get any main residence exemption. Even if you lived in it for ten years, only half the gain would escape CGT and that's assuming the CGT rules on property don't change. You would also expose part of any gain on your current property to CGT by making the inherited property your main home, subject to the reliefs mentioned above.

Take a look at the HMRC helpsheet HS283 for more information on CGT and the main home.

I hope this helps but let me know if you have any further questions.
Customer: replied 3 years ago.

Thank you for the information.

Could you please tell us the rate of Capital Gains Tax?

There are two rates of CGT, 18% and 28%. The rate or combination of rates you will each pay will be dependent on the level of your respective incomes in the tax year of disposal of the property. Assuming you sell the property in the 2014/15 tax year, one of the following will apply to each of you individually:

1 If your income in 2014/15 including your share of the taxable gain is £41,865 or less, then your share of the taxable gain will be taxed at 18%.

2 If your income in 2014/15 excluding your share of the taxable gain is more than £41,865, then your share of the taxable gain will be taxed at 28%.

3 If your income in 2014/15 excluding your share of the taxable gain is less than £41,865 but more than £41,865 when you include the taxable gain, then part of your share of the taxable gain will be taxed at 18% and part at 28%.
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