Another capital gain question?
Discussion
I have elderly neighbours who have asked me for some financial advice, not in a qualified way but as a friend, I have told them they will need an accountant.
But here's there predicament. (They are 84 & 86)
The husband is now in hospital and quite poorly, his sister recently died (no dependants), he had bought a house for her to live in in 1992 and had never charged her rent. They are now selling this.
They paid £64,500 and are just about to exchange at £260,000.
They have no income apart from the state pension.
Is there any ways to reduce there capital gain (legally)
I told them that they have an allowance each of around £11,000 and will pay 18% upto the higher income bracket then 28%. This they were unaware.
As far as I'm aware he has also paid all the maintenance on the house over the last 24 years but never kept bills.
But here's there predicament. (They are 84 & 86)
The husband is now in hospital and quite poorly, his sister recently died (no dependants), he had bought a house for her to live in in 1992 and had never charged her rent. They are now selling this.
They paid £64,500 and are just about to exchange at £260,000.
They have no income apart from the state pension.
Is there any ways to reduce there capital gain (legally)
I told them that they have an allowance each of around £11,000 and will pay 18% upto the higher income bracket then 28%. This they were unaware.
As far as I'm aware he has also paid all the maintenance on the house over the last 24 years but never kept bills.
Maintenance cannot offset gains as far as I recall.
Improvements can do so, if reasonable.
You can defer the bill by investing in EIS, somewhat risky, but do have some IHT advantages that may be worth consideration?
Decent advice is the way forward on this.
Improvements can do so, if reasonable.
You can defer the bill by investing in EIS, somewhat risky, but do have some IHT advantages that may be worth consideration?
Decent advice is the way forward on this.
Edited by ellroy on Saturday 16th January 22:28
Thanks Eric, no not as far as I'm aware, at their age reinvesting is not something they would consider, as long as my thoughts are near enough right I'm happy telling them that along with asking an accountant.
Would I be correct in thinking their tax liability would be approx, £31,000 assuming income of around £7,500 state pension.
Would I be correct in thinking their tax liability would be approx, £31,000 assuming income of around £7,500 state pension.
Tax alert! Do these people also own their own house so potentially have a large estate?
CGT is charged on gains realised upon sales while you are alive. IHT (Inheritance Tax) is charged on the value of your estate after death.
Oldsters need to avoid CGT like the plague in order to avoid double taxation.
Very simplified and crude example for illustration only:
1. Sell house (not main residence) during lifetime with £1,000,000 capital gain = £280,000 tax. Then die, and the remaining £720,000 is subject to IHT at 40%.
Net value remaining for beneficiaries = £432,000
or
2. Keep the same house until death. Executors sell for £1,000,000. No CGT. IHT charged at 40% = £400,000 tax.
Net value remaining for beneficiaries = £600,00
As you can see, the estate/family is £168,000 better off in scenario 2!
CGT is charged on gains realised upon sales while you are alive. IHT (Inheritance Tax) is charged on the value of your estate after death.
Oldsters need to avoid CGT like the plague in order to avoid double taxation.
Very simplified and crude example for illustration only:
1. Sell house (not main residence) during lifetime with £1,000,000 capital gain = £280,000 tax. Then die, and the remaining £720,000 is subject to IHT at 40%.
Net value remaining for beneficiaries = £432,000
or
2. Keep the same house until death. Executors sell for £1,000,000. No CGT. IHT charged at 40% = £400,000 tax.
Net value remaining for beneficiaries = £600,00
As you can see, the estate/family is £168,000 better off in scenario 2!
MisterJD said:
Were the husband to die would it not be revalued on death and form part of the estate for IHT purposes at its current value, then the capital gain problem is wiped out and their situation becomes an IHT problem? Is exchange necessary?
You beat me to it while I was typing! 
Eric Mc said:
Are they selling for a specific reason?
Do they need cash now?
Not everyone has the luxury of being able to hold onto non-liquid assets.
Maybe they could rent it out properly and use it to generate some income for them.
The OP states they had owned it for nearly 24 years and were receiving no rent from the sister, at face value it would appear there is flexibility and that it's only being sold following the death of the tenant.Do they need cash now?
Not everyone has the luxury of being able to hold onto non-liquid assets.
Maybe they could rent it out properly and use it to generate some income for them.
Eric Mc said:
I'm not doing tax calculations for you. I charge for that
How long did they own the property for? It does seem like they must of had it for at least ten years and surely they must have done some work on the house in that time.
Is that a jokeHow long did they own the property for? It does seem like they must of had it for at least ten years and surely they must have done some work on the house in that time.
They bought in 1992 and there selling in 2016.
There is a trustee beneficiary scenario here isn't there? Someone has been holding a property that was purchased for someone else's benefit. Law of Property Act 1925, s53 1b. The trust just needs to be evidenced in writing, person who has lived needs to ar least be named in the beneficial class and main residence relief will apply. Capital does not have to vest in the beneficiary and could after sale be applied for others if there is a defined beneficial class that includes them, sounds like an absolute trust arrangement I not what is required here.
As usual in these cases they ask for friendly advice then ignore it.
The husband has improved slightly and has been sent home, he needs careers 3 times a day and is unaware of the goings on.
The wife, (84 ish) has opened a new bank account and had the sale proceeds transferred there to avoid any problems!!
The husband has improved slightly and has been sent home, he needs careers 3 times a day and is unaware of the goings on.
The wife, (84 ish) has opened a new bank account and had the sale proceeds transferred there to avoid any problems!!
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