Would CGT be levied in this scenario?

[Mary1]

My parents bought their 3 bedroom semi in November 1985 at a 20% discount under the right to buy scheme for £5,700. Their joint names were on the Deeds.
Plus Legal costs of £ 86.25
(Right to buy 20% discount was £8,550 according to Deeds)
My parents then decided to gift the property to me and the Equity transferred to me was finalised on 18th January 1991. No money changed hands as it was a gift.
My parents continued to live in the house rent free until Mum died and Dad went into care in January 1996 and he has since passed away.

Since then the property has produced a rental income, but I now wish to sell. The property has been valued at £105,000 which in any other circumstances would be a large capital gain. However, is inflation taken into account and also would the transaction be liable to CGT as I effectively received the property as a bequest?

Or am I grasping at straws!

[SteLacca]

When your parents gifted the property, did they also account for capital gains tax based on the open market value of the property?

I assume that your father survived 7 years from the date of the gift (he may or may not have based on your post), or that IHT was properly accounted for (allbeit, discounted from full IHT).

[SteLacca]

Ignore me - I just realised it was their home, and so would have been fully covered by private residence relief in their hands.

For your disposal, CGT is calculated by reference to the open market value when it was gifted to you. If that was less than the sale proceeds minus costs of sale, then a taxable gain arises.

[Mary1]

Thank you for your response. I have no idea how much the property was worth when it was gifted to me - we never gave it a thought. Is there any online calculation that would give me some idea. The property is in the East Midlands so wouldn't be liable to large increases. Are you saying that if I can find out approx. the worth in 1991, then the CGT would be levied on that value not the original buying price in 1989? Sorry for being thick, but I have no knowledge of this and my brain is mush when it comes to maths and figures! Is it also true that I could offset any money spent on upgrading - e.g. central heating, double glazing etc.?

[SteLacca]

You can search for similar properties sold at around the same time and price it that way, or ask a local estate agent.

You acquired the property at open market value on the day of the gift, and not at the original purchase price. As I (incorrectly) alluded to in my first reply, had your parents not qualified for private residence relief then they would have had a capital gains tax liability when they made the gift based on market value. In your case, the increase in value between original purchase and the date of the gift has already been taken care of and no capital gains tax was due.

If on the date of the gift the OMV was £100,000, and you sell for £120,000, then you will have a gain of £20,000, of which £8,700 will be taxable (after the annual CGT exemption).

[Mary1]

Thank you so much for that explanation, it is very much appreciated and I understand it!!

[SteLacca]

No problem. I realise that I hadn't answered regarding enhancement expenditure, and this can, indeed, be used to mitigate the gain. You need to ensure that it is enhancement rather than general repai and maintenance.

You can also use the costs of sale to reduce the gain (solicitor's fees, estate agent, etc.)

[Mary1]

Again, I'm very grateful for your advice. It's been a great help.