I realise that I should seek proper financial advice however I thought I would run this one past you as someone may have had a similar experience.
6 years ago my Father died survived by my Mother. The will split their property 3 ways. 50% to my Mother and the other 50% equally between myself and my brother.
The property has a large garden half of which we have managed to renew outline planning permission which expires Nov 2011.
My mother has now decided she wishes to move somewhere more manageable.
The house is up for sale via an Estate Agent and the land up for auction in September.
The values are less then probate valuation.
It has just occurred to me that the house will presumably be subject to Capital Gains as far as myself and brother are concerned as it is not our principal residence an on the whole of the sale price.
My thoughts are that there is quite a bit of interest and an offer may be made on the whole lot prior to auction which will of course want to be in the purchasers favour.
My query is the land. Would that be a separate entity as regards CG?
What I am thinking is could there be some negotiation on prices with some an inflated price on the land balanced against a lower price on the house to reduce CG? In which case negotiations could reduce prices if large chunks could be avoided being given to the Taxman. Just a thought.
Last edited by: Fullchat on Fri 20 Aug 10 at 21:45
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I would assume that as you were given 25% of the land and property, you will have to pay capital gains tax on the proceeds of the whole (land and house) for that tax year. (you are not splitting the sales over two tax years)
1.Take the disposal proceeds (usually the amount received) and deduct your costs and tax reliefs to work out each gain or loss.
2.Add together all of your gains for that tax year.
3.Add together all of the losses you've made for that tax year.
4.Deduct any allowable losses you've made that year from the gains to work out the overall gain or loss.
5.If the overall gain is below the annual tax-free allowance (known as the ‘Annual Exempt Amount’), there's no Capital Gains Tax to pay. The Annual Exempt Amount for individuals is £10,100 for 2009-10 and 2010-11.
6.If the overall gain is above the Annual Exempt Amount, you may be able to deduct unused losses from earlier years.
7.If the overall gain is still above the Annual Exempt Amount, you deduct the Annual Exempt Amount and work out the tax on the balance. The rate of tax is 18 per cent for 2009-10. Follow the 'Capital Gains Tax rates' link below to find the rates of tax for other years
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Thanks Zero.
Clear as mud. I'm just a simple soul. :-(
As I am not in business I have made no gains or losses.
Last edited by: Fullchat on Fri 20 Aug 10 at 22:35
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Won't there be costs even for the sale that can be offset? I'm a simple soul when it comes to inheritance tax too. ;-)
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You want a good lawyer, you do. Wills, Probate, Trusts, Taxation - that sort of thing. I think it's a complex area. Worth paying for (after a short free session to get an idea of what's possible).
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Have I missed something? Form the op you say the property is now worth less than the probate value. If this is the case, there is no capital gain to worry about.
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>> Have I missed something? Form the op you say the property is now worth less
>> than the probate value. If this is the case, there is no capital gain to
>> worry about.
>>
See he needs advice. It may be that selling it cheaper saves a lot of CGT. But complicating it his mum would not have had to pay CGT on her 50% share.
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>> 6 years ago my Father died survived by my Mother. The will split their property
>> 3 ways. 50% to my Mother and the other 50% equally between myself and my
>> brother.
>>
Can you clear up one point - presumably the property was owned by your Father as a "sole tenant" for him to have been able to split it the way he did.
Quote from Directgov
"Ways of owning property
There are different legal ways that you can own your home in England, Wales and Northern Ireland:
* sole tenancy - you personally own the home 100 per cent
* joint tenancy - you own the home jointly and equally with one or more people and your share passes automatically to the other joint owners
* tenants in common - you own a property with one or more people but each share doesn't have to be equal and you can give away your share however you want to "
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The phrase "tenants in common" rings a bell!
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Thanks for all your responses.
I'm on me hols for a fortnight tomorrow (Sat) :-)) so will be dropping out of the thread for a while.
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>> The phrase "tenants in common" rings a bell!
>>
It is likely then that your Father had a 50% share as "tenant in common" and passed on his share to be split equally between you and your brother, rather than the 3 way split you described.
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Indeed, which is why I said the "gain" is 25% of the value as sold.
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But the tax is only due on the gain in value (as it was inherited no tax is due on the original transfer) - and as FC says the value is now less than the probate valuation then there shouldn't be any tax liability. 'Course HMRC might see it differently...!
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Its not inherited. One of the tennents in common is still alive, and the assets are being sold while still alive.
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Hi still watching. Now in Betsw-y-Coed. Cracking digs. One of the kids has brought MY iPod which I don't use and there is wireless in the house we have rented :-)
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It depends inter alia on the basis on which she occupies your half, whether by absolute right or by permission, paying you a market rent.
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Inheritance tax might be the first issue.
This is not totally clear however if the property was jointly owned by your parents prior to your father's death and you and your brother were given 25% of it each 6 years ago then I guess that you will have no IT to pay on that 25% whatever it's value and whatever the gain if your mother survives another year, i.e. survives your father by 7 years.
This would not be the case however if your father was sole owner and left your mother, your brother and yourself a proportion of his estate each 6 years ago.
However this would also be the case if your father had been sole owner and had left 100% to your mother who had then given 25% each to you and your brother 6 years ago.
Then you get into CGT.
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We've been in similar situations with both property sales and inheritance over the last few years.
As the above varied advice suggests it's a complex area and one you can easily get wrong unless pro advice is taken. One thing though... never ever try and fiddle prices of land/property to try and gain some small tax advantage. Those overseeing such things are likely to suss it out and they will get their claws into everything once such activity is suspected.
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>> This is not totally clear however if the property was jointly owned by your parents
>> prior to your father's death and you and your brother were given 25% of it
>>
>> This would not be the case however if your father was sole owner and left
>> your mother, your brother and yourself a proportion of his estate each 6 years ago.
>>
This is why I asked the question in my first post. Fullchat's first post and his subsequent post in reply to mine imply that one of his statements is likely to be incorrect. If his parents were joint tenants owning 50% each, then his father could only leave his own 50% to be disposed of according in his Will, as the other 50% already belonged to his wife in her own right. Fullchat needs to investigate that and get that fact sorted.
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As has been said, it's a complex subject and depends on so many factors.
One would be the basis on which your mother has been occupying the half of the house she does not own. eg does she have an absolute life interest, or is she only there at the discretion of the beneficiaries. Does she pay a market rent? Is there a trust? What kind?
Remember that for taxation purposes deemed ownership is not necessarily the same as actual. If she has been enjoying the whole house without restriction then any original IHT intention may be invalid.
You need proper advice from a specialist with access to all the facts. I only know that in similar circumstances even expert advice was not unanimous, and hinged on minute wording of wills, trustt deeds, letting agreements, etc, and that actual action can in some cases have the effect of changing what you thought was written in stone.
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Some complete rubbish posted above, some good stuff.
As AlastairW pointed out, if the value is less than probate then a loss has arisen, and there is no tax to pay.
This will give rise to a CGT loss which you declare on your tax return and can offset against any gains on shares in the future.
Your mother should get PPR relief on her share of the house. Assuming the garden is a reasonable size for the property, or in any case, less than a hectare, then if she sells the garden AFTER the house, at a loss, then no PPR is available on the garden, so she gets a capital loss which may be useful to her in the future.
I suggest using a good solicitor who can understand the documentation, make recommendations, and warn you of the various tax implications.
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I suggest using a good solicitor who can understand the documentation, make recommendations, and warn you of the various tax implications.
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>>>>>>>>>and that is the only advice i would give,i would also recommend a solicitor that specialises in this kind of thing or you end up paying for lots of unnecessary letters,my solicitor now does most of his paperwork via email which i approve of
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Tax Question - Zero
