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Im currently named on the deeds of my parents house, so we…

I'm currently named on the...
I'm currently named on the deeds of my parents house, so we have shared ownership. As I understand it, when they pass away (hopefully many years from now), their share automatically transfers to me. If I then sell the house, am I correct that I'm liable for capital gains? If so, what is this likely to involve in percentage terms and can I do things to minimise this?
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Answered in 18 minutes by:
7/4/2012
R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: UK Tax
Satisfied Customers: 3,375
Experience: Over 20 Years experience
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Please indicate which country you live in. Thank you.

 

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Customer reply replied 5 years ago
I'm in the UK; sorry, rather an obvious point to have missed.
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Customer reply replied 5 years ago
An answer would be helpful, thanks.
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Tony Tax
Tony Tax, Tax Consultant
Category: UK Tax
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Hi.

Can you tell me how you came to be a part owner of your parents house please. When did this happen and what was the house worth when your name was added to the title deeds? Have you lived in the property during the time that you have been a part-owner?
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Customer reply replied 5 years ago
My parents had always rented and never owned a house before, so I was on the deeds partly to reassure them and also because I was living there at the time. I'd also committed to making some, relatively minor, investment in the property (double glazing). I think I lived there for seven years after the house was bought, until 2004 when I bought my own place. I'm afraid I don't know what the house was worth at the time; it was a 'right to buy' house from the local authority, and so the mortgage didn't relate to the value of the house. I think it was worth about £70k to £80k, though.
Thanks.

If you bought the property in about 1997 with your parents then the cost of your share will be one-third of the total cost of the property. The non-discounted value is not relevant.

Assuming that when each of your parents pass away, you will inherit their respective one-third shares, the cost of each of those shares will be the one-third of the value at the time that each of your parents die.

When you sell the property having acquired your parents' shares, your gain will be the disposal proceeds less the cost of your third in 1997, the value of your father's third when he dies and the value of your mother's third when she dies.

The gain for the period that you lived in the property during your ownership will be exempt from Capital Gains Tax as will the gain for the last three years of ownership. That's a total ten years in all. So, if by the time you sell it you have owned or had a partial interest in it for 30 years, then one-third (10/30ths) of the gain will be exempt from CGT.

There are two rates of CGT, 18% and 28%. The rate or combination of rates that you will pay is dependent on the level of your income in the tax year that you dispose of it. Clearly, if your parents are still relatively young, it could be a long time before you sell the property and the CGT rates and rules could be very different so its not really possible to suggest ways of reducing any tax exposure. You could move into it but you'd only gain anything from that if you lived there for longer than three years. If you let, you would qualify for some letting relief which would reduce the gain but you would need to let for longer than three years to benefit from that.

Let me know if you have any further queries.
Tony Tax
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