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bigduckontax, Accountant
Category: Tax
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I purchased a local authority house with my mother in 1989

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I purchased a local authority house with my mother in 1989 for £10,500. I lived in the property until 1991. The property was re-mortgaged on a number of occasion to pay for upgrades to the property. In 2001 I sold my own property (my main residence) and with the profit paid off the outstand mortgage which was £50,000. At this time my mother removed herself from the title deed which then were in my own name only. This month my mother had to go into long term care and I plan to sell the property. I estimate to sell the property for £140,000- over the years I have paid for £16,000 of upgrades. I solely have paid the mortgage and my mother (who was dependent in later year) always stayed in the property rent free. My plan when I sell the property was to gift the profit to my wife. Can you tell me how I can reduce my CGT....thanks

Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Benjamin Franklin once sagely observed that in life there are but two certainties, death and taxes and as a result of Gor***** ***** abolishing the Dependent Relative Relief in 1988 you have been caught! However, giving money to your wife is an inter spousal transaction and outside the scope of UK taxation altogether.

Firstly forget all about mortgages, they do not come into the computations at all. Your mother's removal from the title deed matters not a jot for her despite it being a disposal as she would be entitled to Private Residence Relief (PRR) which is allowable at 100%. There is a problem though as you only owned half the property 1989 to 2001. You thus acquired the second half then at the current market value then. Can you give me some indication of what that value might have been?

We have a further complication, where did you live after you sold your house?

Once I have the answer to these points I hope to be able to help you further.

Customer: replied 1 year ago.
Hi Keith
When i moved out in 1991 I purchased a flat with my now wife...we then bought a house in 1996 which we sold in 2001 and then bought another bigger house which we still stay in. In 2001 my mum wanted removed from the deeds and I estimate the house would be valued around £90,000 at that point .

Thank you for that information. Your purchase price was 5.25K plus 45K, plus 16K total 66.25K. You sell at 140K so your gain is of the order of 73.75K. From this knock off 11.1K non cumulative Annual Exempt Amount (AEA) leaving say 63K exposed to CGT. The total ownership time is 27 years (you actually calculate this in months) and your occupation time was 2 years plus the last 18 months of ownership when you are deemed to be in occupation even if this is not the case; occupied 3.5 years. Thus 27 - 3.5 / 27 = say 87% of the 63K ie say 55K is exposed to CGT which will be levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. A worst case scenario is a tax bill of say 15.35K.

I do hope that you have found my reply of assistance.

Customer: replied 1 year ago.
Thanks Keith I do pay higher rate tax @ should I expect to pay £15.35K.....will my solicitor take this cash from the profit and pay HMRC direct or is the onus on me to pay by a self assessment in April 2017?

You you are caught by my worst case scenario.

You do not need to declare this gain until you self assess for the tax year of sale. HMRC will then tell you how much you owe and this will have to be paid by 31 January in the year after the tax year of sale. In the meantime I suggest that you put it on deposit. Were you non resident then there is a 30 day limit for declaration and payment.

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