UK Tax Questions? Ask a UK Tax Advisor for answers ASAP
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?
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.