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Sam, Accountant
Category: Tax
Satisfied Customers: 14154
Experience:  26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
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Our parents signed over their house to my sister and me 21

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Our parents signed over their house to my sister and me 21 years ago. We did not ask for this to happen but went along with it. They have recently both died and have left us around £5000 which is the total of their estate. We have sold the house for £172,500
If we had inherited the house instead there would have been no tax to pay as the total estate would have been under the inheritance tax limit. Do we have to pay capital gains tax now ? The house was worth around £55,000 in 1993. Our parents continued to live in the house and paid us 5 pence a year in rent and had a lease drawn up to protect them from us evicting them. We added a conservatory in 1997 that cost £7,500. I myself lived there with them for about 8 months in 1997/1998. They became dependent on us in the last few years. Can we claim exemption ? If not, can we claim other allowances ?
Thanks for your question, I am Sam and I am one of the UK tax experts here on Just Answer.
I am sorry you find yourself in this situation, and as your parents did not pay market value rent to you and your sister , the property, which they gifted to you, and continued to benefit from, is treated for Inheritance tax purposes as a gift with reservation rather then the intended potentially exempt transfer (which sees is disregarded for Inheritance tax after 7 years have lapsed)
This being the case, its correct that this was added back into the estate for Inheritance tax purposes.
However - as each of your parents have a £325,000 Inheritance tax threshold, was there not unused IHT threshold left from the first parent that passed away?
I would ask you to recheck with the solicitor, because along with this, at most they each would have only been considered for half the value of the house at the time of their death.
Next capital gains, I am sorry to say that as the property cannot be treated as a potentially exempt transfer, then you and your sister as legal owners are liable to capital gains tax.
But the cost of the conservatory can be deducted from the gain (along with anything else capital such as new bathroom, new roof etc) and also on your half share - you will get credit for the 8 months you lived there (plus the last 18 months) under the private residence relief rules, but sadly lose out on private lettings relief (as only peppercorn rent was paid
So the gain will be the sale price £172,500 less the value at the time of transfer £55,000 leaves an initial gain of £117,500 from which you can deduct the cost of the conservatory £7500 and you can also deduct the costs to sell (so legal and estate agent fees)
This remaining gain will then be split 50:50 between you and your sister and using £2500 as an approx. figure for the selling costs - that leaves £107,500 of which £53,750 is attributable to each of you.
Of your share of the £53,750 you have an exemption for private residence relief of 26 months (the 8 you lived there plus the last 18 months of ownership)/total period of time owned 252 months (this figure will need firming up
So 26/252 x £53,750 = £5546 exemption
You have a remaining gain of £48,204 of which the first £11,000 is exempt - so a final chargeable gain of £37,204
Your sister will be liable on the whole of her final half share but also has the first £11,000 exempt.
I am also afraid that dependents relief will not apply as this could only ever be considered where property was acquired for a dependent relative before 1988, and this was in 1993.
I am sorry the news is not more favourable, it would seem both you and your sister are paying the price for the decisions made without proper consultation.
Let me know if you have any follow up questions
Customer: replied 3 years ago.

Hi Sam. Thank you for the reply. It will be very helpful. I guess that I will give HMRC the details after the tax year-end ?

Our dad died in January 2013 and because him and mum had a joint account at the building society, their will was not used. (They had a joint will leaving things to each other and then to my sister and I). The building society deleted his name from the account on seeing the death certificate.

Mum died a few weeks ago and the building society have paid direct to the funeral directors again and are sending the balance to my sister and I (about £1,000 each). So no solicitors have been involved at all !

Do you think that I (we) should get help to deal with the taxman regarding the CGT or should it be simple enough for us ?



Hi David
Thanks for your response
Yes, this needs to be reported to HMRC after 05/04/2015.
As long as you do not get caught out with Inheritance tax, that was my only concern - as there would seem to be sufficient NIL ban available for both Dads position back from Jan 2013 to Mums recent passing, to avoid Inheritance tax (which is something at least)
The capital gain position is fairly straight forward to declare (will need to be on the self assessment tax return, so if neither of you complete one already, it would be prudent to let HMRC know now, so they can arrange the issue of this for the year end)
Its something you can do yourself, but you can see whether this is manageable once you get the self assessment return (and there is, once you have registered for self assessment and have the 10 digit unique taxpayer reference allocated) to file the return online (you would need to register - link for you to do this once you have that 10 digit unique taxpayer reference (UTR)
Or you can always come back to Just Answer which is available 7 days a week, if you would prefer not to lose out on the high costs of an accountant to file these for you! You can always ask for me Sam Tax if you would prefer - and the other experts once advised will know to leave the question for me (and if they do not you can always ask them to do so) and I would be happy to guide you through the process and the calculations which I would firm up from the approx. calculation already provided.
Let me know if you have any follow up questions, but, if, in the meantime you would be kind enough to rate the level of service/accept the answer, this would be much appreciated, as this ensures I am credited, by Just Answer, for my time.
Sam and other Tax Specialists are ready to help you
Customer: replied 3 years ago.

Thanks very much for the answers Sam, I will let you know if I think of any more questions later.



Hi David
You are very welcome and thank you for the accept.