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Where Taxpayers and Advisers Meet

Capital Gains tax calculation

Kennedy Gillies
Posts:5
Joined:Wed Mar 22, 2017 10:32 am
Capital Gains tax calculation

Postby Kennedy Gillies » Wed Mar 22, 2017 10:48 am

My wife and her brother were gifted their parent's house in September 1994. It has not been their permanent residence.
In March 2016 my wife purchased her brother's half share of the house for 20k and is now the sole owner. Her brother is now deceased.
She is now about to sell the house for 85K and for capital gains purposes a valuer has identified that the property would have been worth 32k when it was gifted. The gain would be 53k.
Expenses involved with the sale are 2.23k
Based on these figures can someone advise on how much capital gains my wife would be liable for? Does she deduct the 20k that she used to buy her brother's share as an expense and is his share of the CGT taken into account.

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Capital Gains tax calculation

Postby pawncob » Wed Mar 22, 2017 11:22 am

Her base cost is 50% of £32k plus £20k. So the gain is £85k less £36k less £2.23k.
The brother should declare his own gain of £4k. As the house is now worth £85k, the 2016 sale was at an undervalue (not at arms length) so his gain is more likely to be
sale value 50% of £85k, less 50% of cost (£16k).
With a pinch of salt take what I say, but don't exceed your RDA

Kennedy Gillies
Posts:5
Joined:Wed Mar 22, 2017 10:32 am

Re: Capital Gains tax calculation

Postby Kennedy Gillies » Wed Mar 22, 2017 1:01 pm

My wife's brother is now deceased. Should his share of the gain be deducted in my wifes calculation?

someone
Posts:691
Joined:Mon Feb 13, 2017 10:09 am

Re: Capital Gains tax calculation

Postby someone » Wed Mar 22, 2017 1:11 pm

This is all way out of my league but I suspect the answer depends on whether she bought it from her brother while he was still alive or bought it from his estate after death.

Kennedy Gillies
Posts:5
Joined:Wed Mar 22, 2017 10:32 am

Re: Capital Gains tax calculation

Postby Kennedy Gillies » Wed Mar 22, 2017 1:18 pm

His share was bought while he was still alive

someone
Posts:691
Joined:Mon Feb 13, 2017 10:09 am

Re: Capital Gains tax calculation

Postby someone » Wed Mar 22, 2017 2:14 pm

Then I think it goes something like this (but when there's a comment saying that I'm talking absolute rubbish then heed that advice)

Her base cost is 50% of 32K plus 50% of 85K. So the gain is 85K less 58K less 2.23K

Her brothers gain is 50% of 85K less 50% of 32K (which I think should have been declared in the 2015-16 tax year)

There was also a PET of 50% of 85K less 20K which should have been included in your brothers estate for IHT purposes

(This is assuming that the value of the house hasn't changed since she bought out her brother)

If the house was worth 40K when she bought out her brothers share (perhaps she then spent a lot of money extending it) then the gain will be as per pawncob but she should have additional capital expenses to reduce her gain.

Unless she was a significant beneficiary of her brothers will, and assuming that the brother didn't declare his gain as above and pay the CGT at the time, then this could get rather unpleasant as there's a significant tax bill that will either be due from your brothers estate or from you. There may also be some IHT due as a result of the transfer to you.

Kennedy Gillies
Posts:5
Joined:Wed Mar 22, 2017 10:32 am

Re: Capital Gains tax calculation

Postby Kennedy Gillies » Wed Mar 22, 2017 2:26 pm

Thanks "someone"
When she bought her brother's share for 20k the house would have been worth the same as market value today (just under a year ago and prices haven't changed here) So she paid 20k plus expenses for his share which in theory would have been worth 42.5k How does this affect your thoughts on this? He used the money to pay off some debt he had so his "estate" is worthless.

someone
Posts:691
Joined:Mon Feb 13, 2017 10:09 am

Re: Capital Gains tax calculation

Postby someone » Wed Mar 22, 2017 3:21 pm

It doesn't affect my thoughts (but as I said, they might be as worthless as her brothers estate)

I have no idea what HMRCs options are with regards to his gift to your sister. One possibility is that they can go whistle - the estate is bankrupt. But another is that the 22.5K gift to your sister can be unwound in order to recover money that they are owed. (I think the 22.5K gift might have been unwound to pay his CGT even if he hadn't died)

If his estate has any value at all then the executors could be personally liable for distributing it instead of paying his CGT bill.


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