We bought a 2 bed cottage in 1986 mother In law to live

Thanks.

Provided the criteria for dependent relative relief as set out here were met as at 5 April 1988, then exemption from Capital Gains Tax using principle private residence relief can be claimed for the period from the date of purchase in 1986 to March 2013. The gain for the last 18 months of ownership will also qualify for princilpe private residence relief. There may be a small proportion of the gain which is not exempt depending when the gift to your daughter occurs as that is treated as a disposal for Capital Gains Tax purposes. The gain is treated as having accrued evenly over the entire period of purchase.

Take a look at HS283 for more information on the main home and CGT. There is a section on dependent relative relief.

The gift will also be a potentially exempt transfer for Inheritance Tax purposes. Should either of you die within seven years of making your respective shares of the gift, its value will be included in your estate for Inheritance Tax purposes. Take a look here for information on Inheritance Tax.

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