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Where Taxpayers and Advisers Meet

CGT on Inherited House

paul2802
Posts:2
Joined:Tue Apr 09, 2013 2:49 pm
CGT on Inherited House

Postby paul2802 » Fri Jan 20, 2017 12:07 pm

Hi, I'm hoping someone can advise me on how to minimise CGT liabilities on a house my son inherited.

Brief overview... My son inherited my mother-in-laws house in her Will as her only grandchild. My wife (only daughter of her mum) is sole executrix to the Will.
We have grant of probate but that's as far as we have got. For probate purposes, we took the average of 3 valuations which was 400K. In reality had we just sold the property in the 'run-down' state it is in, we probably would have got 440/450K. We are slowly renovating, and when it's finished we expect to have invested probably 10K and expect the value to be around 500K. We may even invest further by extending the kitchen through to the garage, renewing the kitchen and adding a downstairs shower room, but only we if think it will increase the value by more than we invest.
Other relevant info.... We own a house, valued around 420K with a very low mortgage outstanding that will be paid off mid 2018. Currently I am the only person in our house that works full time and could easily qualify for a mortgage.

My understanding is that if our son is the registered owner of the inherited house, and can prove that it's his main residence for a period of time (6 months seems to ring a bell), then there is no CGT to pay if he sells considerably more than the IHT valuation. However, we need to raise finance, probably 40K minimum, to pay off a 10K mortgage that was outstanding, pay at least half of the 23K IHT bill and leave us with some money for renovation work. Our son is not working (currently on a gap year trying to become a pro golfer) and as such he can't get a mortgage and banks/building societies we have spoken to so far won't accept guarantors. Also my wife is a housewife, although she is looking to get back to full time employment very soon.
As such, if required then we can add either my wife or myself to the deeds and obviously there would be some legal contract somewhere/somehow to protect our sons interests.... incidentally, and without going into too much detail, our son will probably gift a small percentage of the house to his mum, but on the basis that the value remains in property and will go back to him eventually when she dies.

Having described the situation above, I'm hoping that someone can guide us in the right direction in terms of 'ownership' of the inherited house to minimise any CGT when it comes to selling. I realise this s a tax forum, but it also has a bearing on how we raise funds.... getting a mortgage on the inherited house appears to be complicated and it's been suggested to us by Santander (who my mother-in-laws outstanding mortgage is with) that we could take out a second mortgage on our own home and gift the money to our son to pay off the debts etc etc.

Any advice you can offer would be greatly appreciated.

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: CGT on Inherited House

Postby maths » Fri Jan 20, 2017 9:15 pm

Being the registered owner is irrelevant for CGT purposes. Beneficial interest is the key.

Thus, if there is to be any chance to claim private residence relief on a future sale son needs to be the beneficial owner irrespective as to who holds the legal title.

Only someone who owns the legal title can get a mortgage on the property.

If your/your son's intention ab initio is to renovate and then sell, any gain is likely to be subject to income tax not CGT. Son living there for 6 months, for example, is no guarantee of CGT applying on a sale.

If IHT was not due on MIL's estate then the base cost for CGT purposes is not necessarily the same value as applied for probate. HMRC would look at this in due course following sale.

paul2802
Posts:2
Joined:Tue Apr 09, 2013 2:49 pm

Re: CGT on Inherited House

Postby paul2802 » Tue Jan 24, 2017 9:53 am

Many thanks Maths.... I have another related question in relation to capital gains tax....

Firstly, having discussed with my son, we've decided that the house will be split 80% my son, 20% my wife.... i.e my son will gift 20% to his mum.... it's a long bitter story, but basically an old Will had split the property 70/30 son/wife, but the actual Will in place at death was 100% son.... there was a bitter feud between wife and some evil interfering distant relatives who we believe were coercing MIL (who was vulnerable due to alcoholism and prescription medication abuse) into ensuring my wife didn't receive anything from the Will.... anyway, sorry for rambling on....

My wife does not work and thus does not pay tax. If she owns about 20%, that will be around 100K (if the house sells at 500K), and presumably that will be classed as a second home, as she owns a house with me.
What I would like to know is how much (approx.) CGT my wife would be due to pay? Also, what can be justified as expenses or costs incurred to reduce the tax liability.

Many thanks


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