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Hi Sam, My brother, sister and I inherited my Mums home…

Hi Sam, My brother, sister and...
Hi Sam,

My brother, sister and I inherited my Mum's home in May 2010. We tried to sell it but couldn't. My husband & myself remortgaged our own home and refurbished my Mum's home to make it more saleable. After 5 more months it still hasn't sold.

If we let it, for 4 years say, to pay off the refurbishment debts, then sell, will we be liable for CGT? We have monthly outgoings on that house (150% council tax, insurance, as well as the interest on the money we borrowed).

Many thanks, Laura
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4/11/2013
Sam
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Hi Laura

 

Thanks for your question and asking for me.

 

If there has been an increase in value between the time you inherited and eventually sell, then yes there will be a capital gain liability to consider.

 

However from that gain made, you can deduct the costs to sell (so legal and estate agent fees) and the costs of any capital improvements, such as new kitchen , bathroom, roof etc. I appreciate that you and your husband have funded the refurb, and with respect to the capital improvements it might be worthwhile discussing with your siblings whether you get a greater share of the profit made (as you have had out of pocket expenses with the loan interest and the value will have increased due to the refurbs made and that these costs are deducted from the gain prior to splitting it three ways) OR that just you get the allowable element of capital improvements to offset from your share of the profit

 

Whatever is then decided with the capital improvements, then the gain is then split according to each of your shares, with each of you having the first £10,600 capital gain free (as this is your annual exemption allowance awarded in the year of sale)

 

If each of you then have any gain remaining, it will be this amount of which capital gains is considered.

If any of you are a higher rate taxpayer (annual income in excess of £42,475) then the gain will be charged at 28%.

If your annual income is less than £42475, then some of the gain will be liable at 18% (based on unused basic rate band) and any amount left over, charged at 28%

 

And of course the rental income should be declared to the tax office (each of your share received) with allowable expenses

 

Thanks

 

Sam

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