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bigduckontax, Accountant
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My wife and I are going to buy a house from the proceeds of

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My wife and I are going to buy a house from the proceeds of a house inherited by my wife following the death of my Mother in Law in late August this year. I now have Grant of Probate as Executor of the Estate. Our intention is that the house would be owned under a three way joint ownership arrangement, the partners being my wife, myself and our son, under which we will each own one third shares in the property. How will this be affected by Capital Gains Tax?
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. I assume that you and your wife are going to enter into a Deed of Family Arrangement to alter your late Mother-in-Law's will to achieve the three way split. Assuming that this house is not any of you threes' sole or main domestic residence, then any gain made on sale from the probate value will be split three ways and be liable to Capital Gains Tax. Each of you have an Annual Exempt Amount (AEA) of 11.1K to offset their share of the gain. CGT is 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. If, perchance, the house is for one or other of you their sole or main domestic residence then Private Residence Relief (PRR) would apply to that individual and relieve the gain at 100%. I do hope that my reply has been of assistance.
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Thank you for your support.
Customer: replied 2 years ago.
I am not sure if you are able to answer my follow up question, as I do not seem to have a reply to that which I can see?
There is no follow up question on this thread. Please expand on your last message.
Customer: replied 2 years ago.
OK. Thank you. We have not varied the Will at all. The former home of my Mother in Law, who died in late August is in the process of being sold, my wife being the beneficiary of the Will. Slightly less than one half of the proceeds of the sale of the house is being used to purchase a house which will be the full time residence of our Son. Initially our intention was to transfer our share in the property to our Son, but an alternative is to retain a joint ownership arrangement which prevails following the demise of individual partners. Thus I am assuming on the death of one of the three partners, the survivors will then own 50% each, and then following the death of a second partner, the survivor acquires sole ownership. We have not felt the need for any legal process to protect our individual interests as there are no other parties involved. I had assumed that in these circumstances capital gains tax would not apply.
Unfortunately your assumption is in error. On the sale of the house then the entire gain less your wife's AEA would be exposed to CGT unless it were her sole or main domestic residence. To make a Deed of Family Arrangement would be more advantageous tax wise. If a property is held as a joint tenancy, in this case by three, then on the demise of any one of the owners the property devolves onto those remaining; it is a tontine.
Customer: replied 2 years ago.
Are the proceeds of the sale of the house not covered by inheritance tax allowance, as the estimated value of the property, was included in the value of her estate for inheritance tax purposes.
On decease all assets are aggregated and exposed to Inheritance Tax (IHT) which is at a 40% flat rate (36% if 10% of the bequests are charitable) on any surplus over 325K. This 325K is expanded by any inter spousal or charitable bequests and a spouse can inherit any of their deceased's partner's unused 325K allowance. Beneficiaries receive any property at probate value. If the property is subsequently sold then there is a possibility of CGT with the gain from the probate value to the net proceeds of the sale being so exposed.
Customer: replied 2 years ago.
Yes, I see. The selling price of the house was £5000, greater than the estimated value stated on the iht205, but the net value of the estate was £364,261 which was well below the IHT allowance threshold when taking into account the full allowance of my mother in law and unused allowance of my father in law. Would I be correct therefore in my understanding that the difference between estimated value and selling price of the property, £5000, would be covered by the Iht allowance and therefore not chargeable for capital gains tax. Furthermore the Deed of Arrangement would benefit our Son as he would become beneficiary of my mother in law's Will, regarding these 'gifts' rather than either mine or my wife's, with regard to the 7 year time frame. Can you advise how quickly and estimated cost of a Deed of Arrangement, and is it drafted by a Solicitor or accountant?
No, but it would be covered by your Mother-in-Law's AEA so no CGT would be due. Your Mother-in-Law inherited and later sold so a gain might be created and, in this case, has. From the figure of gain you mentioned there is no point in going through the rigmarole of a Deed of Family Arrangement as there is no tax advantage therefrom.
Customer: replied 2 years ago.
Thank you. If, at a later date there is a joint decision to upgrade to another property with it remaining our Son's main residence and we retain the joint partnership, with all funds from the sale of the present property used to purchase another property, would this mitigate any liability for capital gains tax at that point?
Not at all; there would still be the CGT on the inherited property unless eliminated by PRR. The application of PRR is an individual matter. Please be so kind as to rate me before you leave the Just Answer site.