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Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14040
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have owned a house for a number of years that until last

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I have owned a house for a number of years that until last year when my mother who had lived in the house for about 40 years died. If I sell the house am I liable for capital gains tax. The house used to be our family home and my wife and I moved in to look after my mum before she died but have now moved back into our house.
Submitted: 1 year ago.
Category: UK Tax
Expert:  Tony Tax replied 1 year ago.
Hi.

Can you tell me how long you and your wife lived in the house before your mother died please. Did you buy the house yourself or was it gifted to you? If you bought it, when did you buy it and how much did it cost? If you were given it, when was that and how much was it worth when it was gifted to you? How much is it worth now?
Customer: replied 1 year ago.
Thanks for your reply, my wife and I moved in for a couple of months to look after her. We bought the house for my mother and father to live in approximately 20 to 25 years ago and paid 35 thousand pounds, I think that it would be worth around 200 thousand pounds now. Thanks Peter.
Expert:  Tony Tax replied 1 year ago.

Thanks. Is the property held in joint names? Can you be a little more precise about the number of years you have owned it please, preferably the month and year you bought it. Was it bought on or before 5 April 1988? If it was, that may be highly significant? Given that your mother lived there for 40 years was it a council house purchase under the right to buy scheme?

Customer: replied 1 year ago.
Thanks for your reply. The property is in joint names I would have to look into my paperwork to find the exact year that we bought it. My father used to work for a company and the house was tied in with the job but when the company was taken over they offered the house at a preferential rate. I will try and find out if it was before the date you mentioned. Thanks Peter.
Expert:  Tony Tax replied 1 year ago.
Thanks.

You can come back to me tomorrow if you don't want to dig around at this late hour for the purchase date.
Customer: replied 1 year ago.
Hello, I have just found out the date that we purchased the property was 4th April 1995. I hope this helps. Peter.
Expert:  Tony Tax replied 1 year ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  Tony Tax replied 1 year ago.

Hi again.

The reason I asked you if the property was bought on or before 5 April 1988 was because there used to be a relief called "dependent relative relief" which exempted from Capital Gains Tax any gain on a property bought by an individual for a relative who was dependent by reason of age or infirmity. Unfortunately, you don't qualify for that relief as the property was bought after 5 April 1988. Your parents may not have been dependent in any event.

You moved into the property for a few months before your mother died so you may be able to claim that the property was your principle private residence for that period and if you are successful in such a claim you will qualify for exemption from CGT for the gain for the last 36 months of ownership of the property as a proportion of the whole gain. The tax office may not accept such a claim but it's worth making the claim in any event.

If you sell the property in July 2013 for £200,000 having paid £35,000 for it in April 1995 you will make a gain of £165,000, £82,500 for each of yourself and your wife. By that time you will have owned it for 219 months. The following figures are for each of you individually:

If you claim that the property was your main home for the few months you lived in it, the gain for the period the property was your main home will be exempt from CGT as will the gain for the last 36 months of ownership. That will account for £13,562 (£82,500 / 219 x 36). The remaining gain of £68,938 will be reduced by the annual CGT exemption of £10,900 leaving a taxable gain of £58,038.

If you don't claim that the property was your main home for the few months you lived in it, then you will have a taxable gain of £71,600.

There are two rates of CGT, 18% and 28%. The rate or combination of rates that you will pay will be dependent on the level of your income in the tax year the property is sold so one of the following scenarios will apply to you if it is sold in the current tax year:

1 If your income in 2013/14 including the taxable gain is £41,450 or less then all the taxable gain will be taxed at 18%.

2 If your income in 2013/14 excluding the taxable gain is more than £41,450 then all the taxable gain will be taxed at 28%.

3 If your income excluding the taxable gain in 2013/14 is less than £41,450 but more than £41,450 when you include the taxable gain then part of it will be taxed at 18% and part at 28%.

 

You may find the notes in HS283 helpful.

I hope this helps. Let me know if you have further questions.

Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14040
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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