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Where Taxpayers and Advisers Meet

Capital Gains Tax: will my mother be liable?

Jos
Posts:1
Joined:Wed Aug 06, 2008 3:02 pm

Postby Jos » Tue Mar 11, 2003 11:17 am

My 91-year old mother has shared her home with my sister, who is on long-term invalidity benefit, for the past 15 years. My sister has eaten with my mother and sat with her most evenings for the past 15 years; other members of the family stay in both the upstairs and downstairs parts of the house when they visit; my mother maintains and uses the downstairs garden. But the basement and the upstairs are separately rated, and there isn't an interior staircase between the two. My sister has been in receipt of Housing Benefit in respect of the basement, paid to my mother within the rules and limits of the Rent A Room Scheme as laid down in leaflet IR87 Letting and your home.

My sister decided last year to move to the Orkneys (where my oldest sister and her family live). To make this possible, my mother put the basement part of her house on the market as a separate property so that she could purchase a home for my sister in the Orkneys, whilst staying put herself in the upstairs part of her house. She has now accepted an offer of £122,000 for the basement, and purchased a house for my sister in the Orkneys for £60,000.

Will there be CGT liability on the sale of the basement? I have referred to the leaflet CGT/FS1 Capital Gains Tax - A Quick Guide, and all the conditions for non-liability in the section What about my home? are fully met. However nagging doubts remain that the Inland Revenue's definition of what constitutes my mother's home might be limited to the upstairs of her house.

Nigel Lord
Posts:518
Joined:Wed Aug 06, 2008 2:18 pm

Postby Nigel Lord » Wed Mar 12, 2003 3:13 am

Jos

Based on the information you have provided, my immediate concern is that "Rent-A-Room" is not correctly due, and has only been achieved because a claim has been made which has never been tested by the Revenue.

Even if rent-a-room relief is correctly allowable, then it is unlikely that the part of the property that is to be sold would fully qualify for Principal Private Residence (PPR) relief, or indeed the £40,000 residential lettings exemption.

I would also comment that the proposed purchase of the house in the Orkneys has CGT and inheritance tax implications that should be carefully considered.

I suggest that you seek professional advice to limit any tax exposure, prior to the sale of any part of the property. It will be necessary to obtain further information before any definitive advice can be provided.

If you require any further assistance please do not hesitate to contact us, and we will be happy to act on your behalf.

Nigel Lord
Lord Associates
Taxation & Business Consultants
102 Smarts Lane
Loughton
Essex, IG10 4BS
020 8508 1642 & 07769 931852
lordassociates@ntlworld.com


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