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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Good morning, In 2002 my father died leaving me 25% of his

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Good morning,
In 2002 my father died leaving me 25% of his and Mum's bungalow which she continued to live in until now, (predicted sale in September 2014). Aged 93 I have just moved Mum into a care home and have just accepted an offer on the sale of the bungalow, necessary to pay for Mum's care. She insists my sister and I have our 25% each of the £285K when the sale goes by in September. I thought we had avoided inheritance tax but my solicitor handling the sale advises we are both liable to capital gains tax. Why is this and how much will my sister and I have to pay and how can we avoid it?
Please advise us.

Can you tell me who owns the house now and in what proportions please.

Customer: replied 3 years ago.

My Mother 50%, my sister and I 25% each


Leave this with me while I draft my answer.

Hi again.

As far as your mother's share of any gain made from the sale of the property is concerned, it will be exempt from Capital Gains Tax on the basis that it has been her home for the entire period of her ownership of a share in it and it is sold within 18 months of her moving into the care home.

As for you and your sister, assuming that the property has not been the main home of either of you since your father left you his share, there may be a CGT liability for each of you if the house is sold for more than it was worth in 2002. So, if for example, the house was worth £200,000 in 2002 and it sells for £400,000, you and your sister will each make a gain of £50,000 (£400,000 - £200,000 / 2 / 2). The first £11,000 of your respective shares of the gain will be exempt from CGT assuming that you don't have other gains in the same tax year. Any balance will be subject to CGT.

There are two rates of CGT, 18% and 28%. The rate or combination of rates that you will each pay will be dependent on your respective incomes in the tax year the property is disposed of. If it is sold in the current tax year, one of the following scenarios will apply to each of you:

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

2 If your income in 2014/15 excluding your share of the taxable gain is more than £41,865, you will pay CGT 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 add your share of the taxable gain, you will pay CGT at 18% on part of the gain and at 28% on the balance.

As for avoiding CGT, if you sell the property you won't avoid it unless your respective shares of the gain are less than £11,000. If you are married or in a civil partnership, you could add your spouse's or civil partner's names to the deeds before you sell it in order to utilise their CGT exemptions. It may also have the effect of reducing the amount of the gain taxable at 28% but that will depend on the levels of all your respective incomes.

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

Customer: replied 3 years ago.

Yes my sister and I have not lived with my mother since 1975.

In 2002 the property was probably worth £200K. The agreed selling price is for September 2014 is £285K.

If I understand you correctly,my, recently widowed, sister's income for 2014/15 will be her pensions not sure how much exactly but I estimate less than £15K. If the property was worth £200K in 2002 and we sell at £285K then her capital gain is in the region of £21K, (85/4). If she does not pay CGT on the first £11K then she will pay CGT of 18% of £10K which is £1.8K?

The same figures apply also to me but it how do we take into account the fact that I have spent £15K preparing the bungalow for sale, improving or adding value?

Please confirm my approximate values above and many thanks.


The improvement costs should be added to the 2002 value so the overall cost will be £215,000. So, the overall gain that will be divided between you will be reduced. Only that proportion of the improvement costs that enhance the value of the property can be added. A lick of paint or a repair to a fence cannot really be said to be an enhancement.
Customer: replied 3 years ago.

Thanks I see that point but please confirm my numbers above are in the right ball park, with reference to the CGT we pay.

The gain will be £70,000 (£285,000 - £200,000 - £15,000) assuming that all the £15,000 you spent can be said to be improvement expenditure. The tax office may ask to see the receipts and invoices.

Each of you and your sister will have a gain of £17,500 (£70,000 / 4). The first £11,000 will be exempt so you will each have a taxable gain of £6,500. If your incomes are similar and at the level you gave for your sister, you will each pay CGT at 18% (£1,170.00).

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