Capital Gains - Inherited Property - Primary Residence
Discussion
Long story short, well as short as can be.
Wife and I inherited property last year value £550k, planned grand designs refurb, then move in with the kids.
Kids start school in the area in September, but we haven’t moved to the property yet, as daughter has GCSE’s so didn’t want to disrupt this so planned to move for Sept start this year in line with the refurb being complete.
Refurb costs have become become to large for me and wife, and also property prices have risen substantially in the area in the last year, enough that if we sell we can get just about mortgage free on a property that we planned on refurbing ours into.
However because we haven’t lived there yet, once we sell, even if we have our current place flipped onto a consent to let am I still going to be liable for capital gains on the difference between the inherited valuation and the sale price even though we are using the proceeds of the sale to fund the purchase of a primary residence ?
If we are lucky enough to achieve the top end of the sale estimates then the capital gains would be in the region of £50/60k and that really stings !
We have evidence dating back to the summer of last year that we planned to move to the property area by way of school and 6th for applications, would any of this matter ?
Thanks in advance
Krise
Wife and I inherited property last year value £550k, planned grand designs refurb, then move in with the kids.
Kids start school in the area in September, but we haven’t moved to the property yet, as daughter has GCSE’s so didn’t want to disrupt this so planned to move for Sept start this year in line with the refurb being complete.
Refurb costs have become become to large for me and wife, and also property prices have risen substantially in the area in the last year, enough that if we sell we can get just about mortgage free on a property that we planned on refurbing ours into.
However because we haven’t lived there yet, once we sell, even if we have our current place flipped onto a consent to let am I still going to be liable for capital gains on the difference between the inherited valuation and the sale price even though we are using the proceeds of the sale to fund the purchase of a primary residence ?
If we are lucky enough to achieve the top end of the sale estimates then the capital gains would be in the region of £50/60k and that really stings !
We have evidence dating back to the summer of last year that we planned to move to the property area by way of school and 6th for applications, would any of this matter ?
Thanks in advance
Krise
I think you can nominate a main residence https://www.gov.uk/tax-sell-home/nominating-a-home - however you should have actually lived in it at some point. Get the nomination in and some cushions scattered about ASAP 
Eric Mc said:
Is the gain you have calculated after all the refurbishment costs have been deducted from the sales proceeds?
Is the property jointly owned?
Hi EricIs the property jointly owned?
The property is jointly owned, the gain is purely from the inherited cost valuation and the estimated sale valuation.
we haven’t refurbished the property, by the time we had surveys carried out, arranged to have everything costed the rise in materials and labour costs over the last 9 months just pushed things out of reach for us so I am unable to offset any of these costs, other than a few thousand in maintenance over the last year or so.
K
Why can't you offset those costs?
As a jointly owned property, the gain you make will be split 50/50 between the two owners. Each of the owners will also be able to offset their annual Capital Gains Tax allowance of £12,300 - so that's £24,600 to come off the gain.
The CGT rates are 18% (basic rate) and 28% (higher rate).
As a jointly owned property, the gain you make will be split 50/50 between the two owners. Each of the owners will also be able to offset their annual Capital Gains Tax allowance of £12,300 - so that's £24,600 to come off the gain.
The CGT rates are 18% (basic rate) and 28% (higher rate).
I'm not sure that's what he is saying.
He seems to have had some costs that are offsetable - such as legal fees, search fees etc.
It's very unusual that there have been no costs at all associated with acquiring a property.
Even mileage costs regarding visits to the property and solicitors etc might be allowable (depending on the circumstances).
He seems to have had some costs that are offsetable - such as legal fees, search fees etc.
It's very unusual that there have been no costs at all associated with acquiring a property.
Even mileage costs regarding visits to the property and solicitors etc might be allowable (depending on the circumstances).
It’s a fine line between evasion and avoidance and one that I would personally take advice on.
Don’t forget that you are already at least £500k up on the deal as presumably you had no financial interest in the property pre inheritance.
When I used to moan about my tax bill my wife would say to me “that I only had a large tax bill because I earned the money most of the people in the country aren’t so fortunate.”
In the example that you quote only you can decide if you want to try and claim it is your primary residence when it isn't simply to avoid paying the due tax.
Don’t forget that you are already at least £500k up on the deal as presumably you had no financial interest in the property pre inheritance.
When I used to moan about my tax bill my wife would say to me “that I only had a large tax bill because I earned the money most of the people in the country aren’t so fortunate.”
In the example that you quote only you can decide if you want to try and claim it is your primary residence when it isn't simply to avoid paying the due tax.
If you own more than one residential property, you can, in certain circumstances, elect to have a property deemed to be your main residence. That choice is built into the current legislation. It was this provision that politicians were using to "flip" their main residences which caused such a furore a decade or so ago.
Provided you go about it the right way, it is perfectly legal.
This is where proper, professional advice is required.
As I mentioned previously, the actual tax payable on the gain may not be as big as the OP thinks it might be so he may not need to do anything apart from just report the gain in the normal way as an when the property is disposed of.
Provided you go about it the right way, it is perfectly legal.
This is where proper, professional advice is required.
As I mentioned previously, the actual tax payable on the gain may not be as big as the OP thinks it might be so he may not need to do anything apart from just report the gain in the normal way as an when the property is disposed of.
Hi guys, thanks for the advice so far, will try to breakdown situation
Property inherited value £550k
Intended to make primary residence, property refurb costs become to much.
Decide to sell property but it’s likely to sell for much more than the £550k inheritance valuation due to crazy property price increases in the area.
Proceeds of sale will be used to buy new primary residence along with small mortgage and our current property will be let out
Haven’t actually lived in the property yet
Property is jointly owned by wife and I
K
Property inherited value £550k
Intended to make primary residence, property refurb costs become to much.
Decide to sell property but it’s likely to sell for much more than the £550k inheritance valuation due to crazy property price increases in the area.
Proceeds of sale will be used to buy new primary residence along with small mortgage and our current property will be let out
Haven’t actually lived in the property yet
Property is jointly owned by wife and I
K
As I mentioned earlier, whatever the gain is, it will be split 50/50 between you and your wife.
Each of you will have a Capital Gains Tax allowance of £12,300 to offset against your respective share of the gain.
The gain will be taxed - some at 18% and some at 28%. What proportion falls into the 18% tax bracket will be different for each of you depending on your other income from other sources (employment, self employment, dividend, interest etc) in the tax year in which the gain arises.
As the property has never been your main residence, none of the reliefs associated with a main residence will apply.
Each of you will have a Capital Gains Tax allowance of £12,300 to offset against your respective share of the gain.
The gain will be taxed - some at 18% and some at 28%. What proportion falls into the 18% tax bracket will be different for each of you depending on your other income from other sources (employment, self employment, dividend, interest etc) in the tax year in which the gain arises.
As the property has never been your main residence, none of the reliefs associated with a main residence will apply.
Eric Mc said:
As I mentioned earlier, whatever the gain is, it will be split 50/50 between you and your wife.
Each of you will have a Capital Gains Tax allowance of £12,300 to offset against your respective share of the gain.
The gain will be taxed - some at 18% and some at 28%. What proportion falls into the 18% tax bracket will be different for each of you depending on your other income from other sources (employment, self employment, dividend, interest etc) in the tax year in which the gain arises.
As the property has never been your main residence, none of the reliefs associated with a main residence will apply.
How does the 18% / 28% split work Eric?Each of you will have a Capital Gains Tax allowance of £12,300 to offset against your respective share of the gain.
The gain will be taxed - some at 18% and some at 28%. What proportion falls into the 18% tax bracket will be different for each of you depending on your other income from other sources (employment, self employment, dividend, interest etc) in the tax year in which the gain arises.
As the property has never been your main residence, none of the reliefs associated with a main residence will apply.
You need to know (accurately) how much income you have from other sources, such as your salary, rental profits, profits from self employment, share of partnership profits, interest income, dividend income etc etc.
Once you know the total of all these added together, you will know how much of your income (excluding any Capital Gains) will fall into the Basic Rate Income Tax band and how much (if any) falls into your Higher Rate Income Tax band.
If your normal annual income already uses up all of your basic rate band, then ALL of the Capital Gain will be taxed at the Higher Rate of Capital Gains Tax.
If your normal income is all taxable at Basic Rate, then some of the gain will be taxed at the Basic Rate of Capital Gains tax and the remainder at the Higher Rate of Capital Gains Tax.
That is why, when the asset being disposed of is jointly owned, the two individuals will pay different amounts of Capital Gains Tax - even if their share of the capital gain is the same.
Once you know the total of all these added together, you will know how much of your income (excluding any Capital Gains) will fall into the Basic Rate Income Tax band and how much (if any) falls into your Higher Rate Income Tax band.
If your normal annual income already uses up all of your basic rate band, then ALL of the Capital Gain will be taxed at the Higher Rate of Capital Gains Tax.
If your normal income is all taxable at Basic Rate, then some of the gain will be taxed at the Basic Rate of Capital Gains tax and the remainder at the Higher Rate of Capital Gains Tax.
That is why, when the asset being disposed of is jointly owned, the two individuals will pay different amounts of Capital Gains Tax - even if their share of the capital gain is the same.
.Krise said:
Hi guys, thanks for the advice so far, will try to breakdown situation
Property inherited value £550k
Intended to make primary residence, property refurb costs become to much.
Decide to sell property but it’s likely to sell for much more than the £550k inheritance valuation due to crazy property price increases in the area.
Proceeds of sale will be used to buy new primary residence along with small mortgage and our current property will be let out
Haven’t actually lived in the property yet
Property is jointly owned by wife and I
K
Have you let the property or left it empty? Has the council tax been in your name?Property inherited value £550k
Intended to make primary residence, property refurb costs become to much.
Decide to sell property but it’s likely to sell for much more than the £550k inheritance valuation due to crazy property price increases in the area.
Proceeds of sale will be used to buy new primary residence along with small mortgage and our current property will be let out
Haven’t actually lived in the property yet
Property is jointly owned by wife and I
K
Gassing Station | Finance | Top of Page | What's New | My Stuff