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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15976
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a question about CGT liability on the sale of a

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I have a question about CGT liability on the sale of a property prevously jointly owned with my mother.

Hi. My name is*****'m looking at your question now and will post my answer or ask for more information here in a short while.

Would you let me know what the question is please.

Customer: replied 1 year ago.
On 29th October 1990 I purchased the house that I lived in with my parents. The house was valued at £42,500. It was a council house and a discount of £23,375 was given under the applicable ‘right to buy’ scheme so the amount paid was to the local authority was £19,125. I lived in the property for about 18 months and have not lived there since. Both my parents, and me, were named on the deeds to the house. After Dad passed away the house reverted to me and Mum. Unfortunately Mum passed away in Dec 2015.
Over the years I have improved the property changing the internal layout and installing new kitchen & bathroom, installing central heating, double glazing and a separate garage. I have some receipts for this work but none to hand so I don't have any figures to give you.
I have put the house up for sale and received an offer of £130,000. The costs of the sale would be about £2200. What is the CGT liability for this sale? I am a higher rate tax payer.
Do you need any more info?

Do you have any idea of the value of the house when your Dad and your Mother passed away?

Customer: replied 1 year ago.
Dad passed away in 1998 so I would be guessing at the value then. I can only assume a value of £130k given that Mum died within the past 8 months.

OK. I'll use what I have and point out the areas where a bit of digging might reduce the CGT in my answer. The calculations will take a while so please bear with me.

If you sell the property in December 2016, by then you will have owned it for 314 months of which you will have lived in it for 18. As the property was your main home, you will be given the last 18 months of ownership as a tax free period so your tax free period will be 36 months. The balance of the gain will be taxable.

As far as the cost of the property for CGT purposes is concerned, that should comprise of the sum of one-third of £19,125, one-sixth of the value in 1998 when you Dad passed away and half of £130,000, the value when your Mum passed away. I will use £77,750 (£6,375 + £6,375 + £65,000) as the cost for CGT purposes. You can add to that the cost of buying and selling the property, £2,200, and the costs of any improvements. HMRC may ask for proof of any improvement costs that you claim.

Using what I have the gain will be £50,050 (£130,000 - £6,375 - £6,375 - £65,000 - £2,200). The sum of the gains for the period that you lived in the property and the last 18 months of ownership will be tax free. That accounts for £5,738 (£50,050/314 x 36). That leaves £44,312 (£50,050/314 x 278). The first £11,100 of that will be tax free due to the annual CGT exemption so you will be left with a net taxable gain of £33,212. As you are a higher rate taxpayer, you will pay CGT at 28% so your CGT liability will be £9,299.36, payable on 31 January 2018 assuming the property is sold by 5 April 2017.

If you can get a value for the property when your father died and verify some of the improvement costs, you will be able to reduce your CGT exposure.

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

Customer: replied 1 year ago.
That is really useful, thank you. Just a couple of points for my own clarification. Assuming I can obtain an accurate or accepted figure for the value of the property when my father died, should the CGT be one third of the value in 1998 rather than one sixth as you've written? Also, if I can find receipts for the cost of the improvements how are they applied to the calculation, in full or does it depend what the improvement was, i.e. are certain improvements acceptable and others not?

Your father owned one-third of the property when he died so your mother and you each inherited one-sxith of the property from him. Then, when your mother died, you inherited one half of the property from her so that you then owned 100% of the propety (one-third + one-sixth + one half). The cost for CGT purposes is £77,750 but will increase if you can establish a value in 1998 and take one-sixth of that instead of £6,375.

You cannot claim the costs of repairs and general maintenance. You can claim for genune improvements. All of the things you mentioned are fine, though HMRC may query the change of layout costs.

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Customer: replied 1 year ago.
Many thanks, ***** ***** with your comprehensive answer, I thought it might be more!