CGT on house my mother originally inherited

[pqtaxation]

I agree. There is only one asset, which is enhanced by the addition of the 50%. Upon a disposal the normal part-disposal rules apply and so it's an averaged base cost.

Thanks for confirming average cost would apply to disposal. So in the circumstances of W re-acquiring 50% interest in house from H's estate so W then had entire interest and therafter gifting 50% to children as PET there would be a deemed capital gain calculated on W's average base cost not on H's probate value and your original answer a) saying otherwise (i.e deemed gain based only on probate value at death) needs to be corrected in these circumstances.

Does there?

Thanks for confirming that there is no such a restriction in UK - so in the hypothetical circumstances of H having been diagnosed with cancer and having been given a few months to live: if W had gifted her 50% interest in second home to H; H in his (revised if necessary) will devised his 100% interest in second home to her; she gifts 50% interest after his death to children as PET; then the result given in your original answer a) would be correct. Yes? [and that also would have removed extra wrinkle of related property IHTA 1984 s161 creating possible difference in valuation of circa 10% on H's 50% interest for IHT and CGT as he would have owned entire house on his death not just a 50% interest ]

[cturner]

... My concern was that the hmrc instrument of variation checklist (IOV2)states a similar example where the sons inherit but redirect via DOV to mother ...

Just a further thought --maybe a case of my not seeing the wood for the trees in my tiredness last night.

[color=#FF8040]If your (you and your sister) legacy under your father’s will is to the value of the NRB at time of his recent death (viz £325k) and the remainder of his estate passes into residue for the benefit your mother, then you could simply renounce your legacy, rather executing DoV, so as to increase residue and preserve transferable NRB? [/color]

Does not change query over what is the cost basis for CGT of the second home that will be owned entirely by your mother.

Thats an interesting proposition to renounce the legacy - how do you do that without a DOV

[pqtaxation]

That's an interesting proposition to renounce the legacy - how do you do that without a DOV?

From your point of view as beneficiaries, it is the same process -- namely you ask a solicitor to prepare a deed for your execution that disclaims (renounces) your benefits and that meets the requirements of IHTA 1984 s142. If under the terms of the will, the disclaimed disposition passes into the estate residue and so on to surviving spouse then it is exempt from IHT and does not use any of deceased spouse's NRB.

Of course there can be no guarantee that in future the NRB will be increased in value before the surviving spouse dies or that transferability of NRB will not be ended/restricted as to time after the deceased spouse died.

[cturner]

... it was split 3 ways in 1970 .... the estimated cost in 1982 is 30k

I dont really understand CGT much, and this seems complicated but
Is the essence ... that the inherited 50% share from H to W would only be liable to CGT on increase in value of that 50% (250k = 50% probate valuation) between acquisition and gifting - i.e. very little, if anything, if that was a short period

The CG/IH taxation aspects may not be as simple as you might hope because, by your re-directing H’s 50% interest to W by DoV, W becomes owner of the entire interest in second home again.

For her (W) to gift thereafter to you (children) a 50% interest with a cost basis of the uplifted (to 90% or more of market) probate value would imply the use of LIFO (last in first out) cost accounting. I suspect (but don’t know) average base cost would apply as calculated below.

However there has to be some anti-avoidance restriction on a healthy spouse gifting all assets to the spouse on latter’s deathbed whose will bequeaths them back to surviving spouse at uplifted market value – indeed is there an uplift in base cost for CGT in such circumstances?

There might also be an effect from W having previously owned the part of the asset (second home) but deriving a benefit from using it all.

But it’s late at night/early morning where I am abroad (and I'm having a crash course in its estate duty taxation of this and another country) and sleep is just about on me. So can someone with greater knowledge of UK taxation in this area, and who is wide awake, please take on this query to provide the answer?

Base Cost Analysis

1976 W inherits 1/3 interest

March 1982 cost base uplifted to then market value of say 30,000 *1/3 less say 12.5% discount for 1/3 interest =£8750

1996 Buys 2/3 share of other 2 interests for £50,000 before other acquisition costs – legals, stamp duty- to make cost basis £58,750

1996-2010 W Gifts 50% interest to H who takes on her cost base of 58750/2 =£29,375

2011 H died and his 50% is valued at £250,000 for probate (related property) but at discount of say 10% for CGT (= £225,000) if value not ascertained because of spouse exemption.

Passes to W to re-unite 100% interest on one person with base cost of 29,375+225,000 = £254,375

So base cost of 50% interest = 254,375/2 = 127,183

Deemed Gain on gifted disposal of 50% interest = (500,000 market value– 254,375)/2 =122,812

[b]You kindly answered this a while ago.I have since found that my mother has on her tax form `uk proprty losses brought forward of £50000 on this house, as it was rented as a holiday home etc what difference would that make to the gain you roughly calculated above -ie what would be the rough cgt of gifting half the property
[/b]

[mullet]

You kindly answered this a while ago.I have since found that my mother has on her tax form `uk proprty losses brought forward of £50000 on this house, as it was rented as a holiday home etc what difference would that make to the gain you roughly calculated above -ie what would be the rough cgt of gifting half the property

I haven't read/tried to understand the entire thread, so apologies if I am missing the context. You appear to be asking whether brought forward "revenue" losses of £50,000 can be set against a capital gain arising in a later year. Sorry, but no. Such income losses cannot be set against a later year's gain.

[Incredulum]

If it qualified as a furnished holiday let those losses should possibly have been offset against other income?