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Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14057
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I have a question of capital gains tax. Our father passed

Resolved Question:

I have a question of capital gains tax.

Our father passed away sover 20 years ago and one of the assets he left my mother (and myself and brother who were children then) was a plot of land overseas. It was transfered into our names since he passed away suddenly. It not an actually property itself - just a plot of land. We are now finally looking to sell that plot of land and maybe purchase a flat for my brother with the proceeds.

Are we liable to CGT given it was a plot of land my mother inherited on her husband's death? (with myself and brother being minors at the time) Would we be individually be liable for CGT since the land is in all our names? Our family have never sold a major asset like this before so are unfamiliar with CGT.
Submitted: 10 months ago.
Category: UK Tax
Expert:  Tony Tax replied 10 months ago.
Hi.

Did your father's will mention the names of you and your brother in his will in relation to the plot of land? Can you tell me when the names of you and your brother were put on the property deeds officially?
Customer: replied 10 months ago.


Our father passed away suddenly so did not leave a will. We were beneficiaries to the land. brother and I were put on the property deeds officiallly a few years after he died around 1991. We were both under 12 and the land was transferred into my mother's name as well at the time who was now a widow.


 


The land is overseas in Pakistan. We now want to sell the plot of land. Would our plans for any potential proceeds affect potential CGT? My brother was thinking of buying a flat with some or all of the proceeds. If mother said all the proceeds could be given to myself and brother are there even inheritance tax issues?

Expert:  Tony Tax replied 10 months ago.
Thanks.

Do you all live in the UK? Does your brother want to buy a flat in the UK? Are you all domiciled in the UK or Pakistan?
Customer: replied 10 months ago.


My brother and I were born in the UK, raised in the UK and lived here always as UK citizens.. Mother moved to UK from Pakistan over 35 years ago and is UK citizen now. Father moved to UK, studied here and became British citizen.


 


My brother would like to buy a flat in the UK. Our family home is in my mother's name where myself and her are based. Brother rents his own flat and would like to now own a flat of his own

Expert:  Tony Tax replied 10 months ago.
Thanks.

Leave this with me while I draft my answer.
Expert:  Tony Tax replied 10 months ago.
Hi again.

It occured to me that I may be able to give you a shorter answer if I knew what the value of the land in Pakistan was in 1991 when your father passed away. Do you have any idea of that? What is it worth now?
Customer: replied 10 months ago.

the land has increased in value


 


father purchased the plot for around 250 thousand rupees in 1985 ( i don't know how much that was in british pounds then) or how much in 1991


 


now the offers coming in are in the region of 80 million rupees which is in the region of 480 thousand british pounds on present exchange rate


 


 

Expert:  Tony Tax replied 10 months ago.
Thanks.

There were about 12 Pakistan Rupees to 1 British Pound in 1985 and in 1991. 250,000 Pakistan Rupees was equal to about £1,500 in 1985 and 1991.

My understanding of UK law is that a minor (a child under 18) cannot own property. Normally, where a property is left to a minor child, it is put into trust until they are 18 or an age specified in the will or the trust at which time they assume control of their share of a jointly owned property with the value at the time being used as the cost for CGT purposes.

Your father died intestate. In those circumstances, the estate up to a value of £125,000 for deaths before 1 February 2009 would have passed automatically to your mother. She would also have a life interest in half of the excess over £125,000. The balance would have been split between you and your brother but as you were minors, it should have been held in trust until you were 18.

Strictly, your mother would have a cost for her share of the land based on its value when your father passed away in 1991. You and your brother would assume a cost based on the value of your respective shares when you reached the age of 18 and you assumed ownership. The tax office may say that you effectively inherited in 1991 and that the value of you and your brother's shares should be based on the 1991 value but your mother would have a life interest in half of your late father's estate if it was worth more than £125,000 until she dies or renounces such an interest.

If the land is worth £480,000, you are going to have a large gain. The fact that you want to use the money raised from a sale to buy your brother a house will not affect the CGT position. Since you and your mother are part owners of the land, if you give the money to your brother to buy a flat, you will each be treated as having made a gift for Inheritance Tax purposes and should either of you die within seven years the gift vale will remain in your estate for IHT purposes.

If the land was your mother's because your father's estate was worth no more than £125,000 (the intestacy rules), then you and your brother will be treated as having acquired your shares when your mother put you on the deeds although minors cannot strictly own property under UK law.

You need to establish the value of the land in 1991 if it was substantially more than what it was worth in 1985. It would also be useful to establish a value when you and your brother's names were added to the deeds and when you each reached the age of 18. If I were you, I'd have an accountant or tax adviser and possibly a lawyer take a look at the figures since there is potentially a lareg tax bill for each of you, your brother and your mother.

I hope this helps but let me know if you have any further questions.
Tony Tax, Tax Consultant
Category: UK Tax
Satisfied Customers: 14057
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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