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bigduckontax, Accountant
Category: Tax
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My parents established a tenants in common agreement

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My parents established a tenants in common agreement for our family home, a property c700K GBP in Value, their shares being 50/50.
My father died in April 2013 and I have land registry document (dated August 2013) "Official Copy of Register of Title B" which shows the Tenants in common are now my Mother 50%, and my brother and me 25%.
We are planning to sell the house march next year and use my mothers 50% to buy a flat for her.
Can you clarify whether my brother and I will pay any tax on our shares next year, and
When my mother dies, on her assets, if they stay under $500k, and under the same rules.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Firstly is this house the tenants in common sole or main domestic residence? Secondly have the tenants lived there? Thirdly, has it ever been let out? Finally have you any idea of the current value? Under current Inheritance Tax (IHT) rules the first 325K is tax free, the balance being charged at a flat rate of 40%. However, your mother is entitled to use any remaining unused 325K from your Father's estate making a possible total of 650K. Remember inter spousal and some charitable bequests expand your Father's 325K tax free allowance. However, the rules are changing [source Which] viz: 'Inheritance tax rule changes In the 2015 Summer Budget, the Chancellor, George Osborne announced a new transferable main residence allowance, which will gradually increase from £100,000 in April 2017 to £175,000 per person by 2020/21. This is in addition to the main nil-rate band. It will effectively raise the IHT-free allowance to £500,000 per person. Where married couples jointly own a family home and want to leave this to their children, the total IHT exemption will be £1m.' So you see to some extent it is all up in the air. I now need the data I requested at first to advise further. '
Customer: replied 2 years ago.

Firstly is this house the tenants in common sole or main domestic residence? - It us my mothers only residence, my brother and I have not lived there for at least 10 years

Secondly have the tenants lived there - yes we all lived there as a family

Thirdly, has it ever been let out? - no

Finally have you any idea of the current value, about 700,000

As it is your mother's sole or main domestic residence Private Residence Relief (PRR) applies and this relieves Capital Gains Tax (CGT) at 100% so she incurs no tax liability on sale. You and your brother would be liable for CGT on sale, but the calculation is complex. CGT is based on the gain made on disposal. You acquired your shares on your Father's death so the probate value gives that. This would be deducted from the 700K value divided by four to give your shares of the gain. Both you and your sister would have an Annual Exempt Amount of 11.1K to offset this gain, the balance being taxed at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale. Depending on the gain from the sale less the probate value your liability might be small or even zero; it all depends on how fast house prices are rising in the area.
Customer: replied 2 years ago.

ok understand that, that's great

What then happens when our mother dies and we inherit the flat she buys with the her 50% of the proceeds from the house (shares) next March.

All her assets will be aggregated and exposed to Inheritance Tax. I have explained the levels of tax, anything over 325K will be taxed at 40%, but she may well have some of her late spouse's 325K also to inflate the limit. Then there are the Chancellor's proposals which kick in in the 17/18 tax year. Then there is the one million for property passing to children coming over the horizon. So it all depends upon how long she lives. I am sorry I cannot be more exact. I hope you understand. There is an awful lot of 'Jam tomorrow' in the current proposals.
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