CGT query on second home / PRR while also renting. Fairly complicated

[sdltquerist]

Hello, I have a pretty complicated query about capital gains tax and a second property which was owned by my stepfather, which I'm hoping someone can help with. It's in Scotland if that makes a difference. It's fairly convoluted so I have broken things down by property below:

Property A. This was (I think) the main residence of my stepfather and mother. Owned by my stepfather prior to his marriage to my mother circa 2001. Property was sold in July 2013. As far as I know, it was only ever in my stepfather's name.


Property B, holiday cottage in another town, again owned by my stepfather since before marriage to my mother, purchase date some time in the 1990's, never rented out or used for business. Stepfather and mother split their time between properties A & B until the sale of property A. After which they split their time between Property B and C.

Property B was gifted at no cost to my step brother in Jan 2020. As far as I know there was no outstanding mortgage and the property was only ever in my stepfather's name.

Property B was the only residential property owned by either parent from July 2013 to January 2020. After the disposal of Property B in January 2020 onwards, no residential property has been owned by either my stepfather or mother.

Property B is my main concern re CGT liability.



Property C. Not owned by either parent. It is rented accommodation, lease started in July 2013 after sale of property A.
My parents continue to live at rented property C, splitting their time between it and property B at weekends.


My questions are as follows:

Would my stepfather have been liable to pay CGT on the disposal of property B when he gifted it to my step brother, which at the time of disposal was their only owned residential property.

If so, would they have been eligible for any private residence relief, perhaps between July 2013 to January 2020? Can that be claimed for during a period in which they were also living in the rented property C?

My last question may be beyond this forum, but hypothetically, if any CGT that was due on property B had been unpaid, could my mother be potentially held liable for any or all of it, either now, or if my stepfather predeceases her, despite property B never having been in her name?

For clarification I'm asking this prior to speaking to my stepfather and other family as things are complicated by way of his health and the family situation, and I'd rather be armed with some information before I raise this (possible) issue with them.

[bd6759]

It would be a question of fact if B was the main residence. You refer to it as a holiday home, which suggests it was not.

Only the person disposing of the property would be liable to CGT. Your mother would be liable if she had a beneficial interest in it.

[AGoodman]

PPR is available on your "only or main" residence. As B was the only owned residence, it would qualify for PPR 2013-2020.

As bd6759 says, your mother would only have a liability if property B belonged to her in some way. This doesn't sound likely from what you have said.

The only problem could arise when your step father dies as the executors/administrators of his estate are then potentially liable for his tax liability. However, this can only extend to tax years in the six years prior to his death (assuming he was careless in not paying rather than deliberate).

So he is potentially liable to tax, interest and some penalties but if he lives to 2026/7 (ish) an assessment can't be raised against his estate .

[sdltquerist]

PPR is available on your "only or main" residence. As B was the only owned residence, it would qualify for PPR 2013-2020.

As bd6759 says, your mother would only have a liability if property B belonged to her in some way. This doesn't sound likely from what you have said.

The only problem could arise when your step father dies as the executors/administrators of his estate are then potentially liable for his tax liability. However, this can only extend to tax years in the six years prior to his death (assuming he was careless in not paying rather than deliberate).

So he is potentially liable to tax, interest and some penalties but if he lives to 2026/7 (ish) an assessment can't be raised against his estate .

As far as I know my mother has never had any legal ownership of the property. It was owned by my stepfather prior to them meeting, and as far as I know there was no change in ownership until he gifted the property to his son. The property has never been rented out for income, always just used as a weekend/holiday home.

My stepbrother and his wife are named as executors & have POA, so if I can save them from a headache later then so much the better. Are you able to tell me more, or point me at the rules regarding six years prior to his death? As for being careless rather than deliberate, I have no idea. I would have thought that solicitor that arranged the transfer might be bound by by some professional code of conduct or otherwise required to report the disposal.

It would be a question of fact if B was the main residence. You refer to it as a holiday home, which suggests it was not.

Only the person disposing of the property would be liable to CGT. Your mother would be liable if she had a beneficial interest in it.

The property has been pretty much exclusively used as their weekend & holiday home, and I'm pretty sure it is also counted as a holiday home for council tax purposes, although how much congruence there is between council tax legislation and the rules governing CGT I don't know.

Beneficial interest is a bit of a question mark. As previously stated, to my knowledge my step father has been the sole legal owner from the day he purchased the property prior to marrying my mother, until he gifted it to my step brother in 2020. The property has never been rented out so no income from it has come my mothers way. Essentially her only 'interest' in the property is that she has lived in it with my stepfather at weekends and holidays.

[bd6759]

PPR is available on your "only or main" residence. As B was the only owned residence, it would qualify for PPR 2013-2020.

Not if the main residence was the rented property. A tenancy in an “interest” albeit a negligible one. A nomination would be needed to ensure that the holiday home was treated as the main residence.

Hence the need for ESC D21- and subsequently s222(5A) TCGA.

[sdltquerist]

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