Capital Gains Tax

[LoftyLottie]

My son and I jointly inherited my mothers estate, nearly 100% of which was her house. Under the inheritence tax threshold.

My son lives in the house and we are now selling part of the garden for building plots. I understand that I will have to pay capital gains tax on my half of the proceeds because I don't live in the house.

It is then intended that my son will buy my share of the house from me and I have been told that I will have to pay capital gains tax on what I receive from my son.

So does this mean that anybody who inherits a housein fact has to pay capital gains tax if they don't live in it, but sells it, but that anybody who inherits money pays no tax whatsoever.

It seems very unfair to me.

If any suitably qualified or knowledgeable person can give me an answer it will be much appreicated.

[LoftyLottie]

I fully understand why I am paying capital gains tax on the garden plot by the way and have no issue with that.

Thanks.

[dzug2]

Not quite - you only pay capital gains tax on the GAIN. If the house doesn't go up in value then there is no gain to tax.

If someone inherits money that doesn't go up in value, so no gain to tax.

If someone inherits shares then if they go up in value there will be capital gains tax when they are sold.. If they don't - no gain to tax.

[LoftyLottie]

Well thank you. That was what I initially thought but my accountant indicated otherwise. Shan't use it again. The house will actually decrease in value when we get rid of 1/4 of the land. It has already decreased in value since 2009.

I really value your answer.

So I shall have to pay capital gains tax on half of the proceeds of the land sale and only pay capital gains tax if the house has increased in value.

That has made me happy!!

Bless you!!

[twix123]

If you sell both the plot of land, realising a capital gain, and your half of the house, giving a capital loss, within the same tax year, surely you should be able to offset one against the other for tax purposes.

[LoftyLottie]

I meant 'shan't use him again'. He muddled me up and made me think I had to tax on the whole amount I receive from my son as payment for my half of the house.

I have no problems whatsoever in paying capital gains tax of any increase in value (if any).

Thanks again

[alexanderd]

Just sold my late aunts house Lottie no capital gains tax to pay
Alex

[LoftyLottie]

Thanks Alexanderd. I am feeling much better now. I am not a greedy person but I felt it seemed a bit unjust. I am retired and my husband is coming up to retirement and that money is going to help us. We haven't got large pensions to look forward to!!

[alexanderd]

Dont blame you the money from the house was shared between me and my 3 sisters but still a nice little nest-egg for my old age(LOL)

[LoftyLottie]

I will have to pay capital gains on the land because I don't live there twix, but it seems I have no capital gains to pay on the money I get for my half of the house, because it has actually decreased in value since probate was granted

My accountant had said that I ought to do the transactions in two separate fiscal years in order to gain the advantage of the £10,000 allowance in both years, i.e £10,000 allowance on my total income from the land sale and £10,000 on the income from the house sale.

However, it now seems from these kind answers that it isn't £10,000 on my income from the house sale, but £10,000 allowance from any gain in value on my share of the house.

How very complicated!!

[LoftyLottie]

Alex, My mother particularly wanted my son to get onto the housing ladder - what better than bequeathing him half her house, and yes she has made my retirement easier, bless her.

I do miss her though and would rather have her!!

Lottie x

[alexanderd]

To complicate matters more cgt is only payable on anything over £300000 and as my aunt hadnt claimed when her husband died his share went to her so in fact we would only have had to pay if the entire estate was over£600000. It was nowhere near that I might add. The garden is obviously a different matter

[Barmaid]

Lofty, I assume your mum's estate has been fully administered? How long ago did she die? If less than two years, there might be a way round this.

I also assume it was transferred to you and your son jointly at probate value? You should have acquired the house at probate value and you will only pay tax on the gain since then. Thus if probate value was £100k and it is now worth £150k the gain is £50k. You share is £25k. If you made no disposals last tax year, you should be able to use your unused allowance from that year too.

HOWEVER - what agreement did you and your son reach for him living in the property? I seem to recall that there is an exemption for cases where there is a trust of a property for certain classes of relative. I remember doing some work on a similar area - now I just need to remember the case name to access my notes (to save me looking the whole damn shebang up again!).

To answer your general point "So does this mean that anybody who inherits a housein fact has to pay capital gains tax if they don't live in it, but sells it, but that anybody who inherits money pays no tax whatsoever?". No that is not the case. If someone inherits a house but they decide not to live in it, they can have the executors sell the thing. It's only if there is a sharp rise in the probate value that CGT will be payable - but depending on the tax status of the beneficiaries, it may be possible to mitigate part of this. Also it is possible to substitute the sale price for the probate value, which may mitigate IHT and also has the effect of mitigating CGT. There are LOADS of variables though and it depends on each situation.

[Barmaid]

Sorry Loftie - that was a totally botox answer - typical lawyer, written so that no one with a brain can understand it! (Although I have now been up for 18 hours).

[LoftyLottie]

Thanks for your input Barmaid.

The probate value of the house was £225.000. It is now probably worth £210.000 Mum has been dead for two years this months. The land will probably bring in about £130,000, so 65,000 to both my son and myself and I have been told I will have to pay capital gains tax on my share, which will be I presume 40% of £55,000, taking into account the allowance.

My son just lives in the house as a caretaker at the moment - we have a very private arrangement about money, but officially he doesn't pay rent!! I will say so more.

The land sale will probably not go through at the very earliest until June/July, but may well be later.

He would like to buy my half as soon as the land is sold (garden plot and of a size where capital gains doesn't apply) and, of course, as soon as he can get a mortgage.
His share of the land sale will be invested mainly in getting the house back in order.

[LoftyLottie]

I was the executor.

[LoftyLottie]

Or rather I had Letters of Administration because the executor relinquished his position.

[Barmaid]

2 years this month? When?

The only reason I ask is that it might be possible to vary your mother's Will. I haven't really thought this through yet, but sometimes (and only sometimes) it is possible to mitigate tax bills this way.

Let me muse on it over night.

[Barmaid]

And would you have any objection to transferring half to Mr LL?

[LoftyLottie]

Are we talking the tax bill on the Land? Two years next week!!

Transfer half of what to Mr LL. My half of the house or my half of the proceeds of the land/house.

Bless you for your interest and help x

[Barmaid]

Probably a bit late to think of varying if it is next week!! But I'll still give it some thought.

You have no tax to pay on the house by the looks of it since there is no gain and is in fact a loss. If you transferred half of your share of the land to hubby you would get to use his allowance (assuming he has no chargeable gains in the last 2 years) too and transfers between spouses are exempt. That won't help your son but it might mitigate the CGT on your share of the land.

Further, I am sure you can offset losses in the same tax year against gains but I never did personal taxation (only trust and estate taxation) so I couldn't help with that.