HMRC fine for property CGT - what are the rules?

[spanky3]

My 80 yo mum has been sent an HMRC fine for undeclared property CGT. Here's the situation:

In 1970 my parents bought their family home. In 2000 they separated but didn't divorce. My mum bought her own flat after my dad paid her for her share of the house. Although she moved out she was never removed from the deeds.

My dad continued to live in the house until he died in 2022 leaving everything in his wiil to my mum, (still technically married) and in 2023 she sold the house.

So, two separated people with one property each would normally be fine I think, but does her being on the deeds as joint owner mean that she didn't inherit it, perhaps making her liable for CGT on half the gain from 2000 until sold? Or does my dad living in it as sole residence make it exempt?

[MaxFromage]

Is there any paperwork to show he 'bought' the other half of the house in 2000 or was it just a monetary adjustment to settle the joint finances?

I had a client in a similar situation. We had solicitor documents to show what happened (but didn't at Land Registry) and advised HMRC as such. We didn't hear anything back.

[spanky3]

I think my dad had her sign something he drew up to say she had no claim to the house but no idea what happened to it. Other than council tax records there isn't anything to say each lived in a different house.

The more I think about it the more I'm confused by what hmrc might calculate as due since as joint tenants they both owned 100% of the property but only one of the joint tenants lived there as their primary residence.

[konark]

If they were joint tenants the house was hers after he died irrespective of the will. This, and the fact that they were still married would have led to no questions asked at the time of the sale.

The only problem might be if she was to sell her current flat in the near future this might be flagged up as a second property.

[MaxFromage]

spanky3 said:

I think my dad had her sign something he drew up to say she had no claim to the house but no idea what happened to it. Other than council tax records there isn't anything to say each lived in a different house.

The more I think about it the more I'm confused by what hmrc might calculate as due since as joint tenants they both owned 100% of the property but only one of the joint tenants lived there as their primary residence.

This is quite complicated and it will be worth your while speaking to an accountant. As they were still married, technically they would have to elect a property to be their main residence and they can't have one each for tax purposes (principal private residence). Without looking I'm not sure if that can be affected be separation.

[Panamax]

Fairly obviously if a residential property that isn't her main residence gets sold she'll be hit with CGT at the +8% rates, so 18% and/or 28% on everything above the annual exemption.

A property is only an exempt main residence if YOU are living in it.

Without knowing the amount of cash that would be needed to pay the CGT it's hard to know what level of professional advice should be sought. You need to get a handle on that right up front because there could be many ££££10,000s in play here. Then make sure proper advice is ought from someone who really knows the subject and can deal with HMRC.

[Eric Mc]

Also, be aware that there are strict time limits for notifying HMRC of the sale of a domestic residence for CGT purposes. Basically, you MUST register with HMRC online, file the Capital Gains details using your one off special code and PAY the CGT liability all within 60 days of the date of completion of the property sale.

If you fail to do this there will be penalties for failure to comply and there will, of course, be interest charges for every day the tax is overdue.

[Panamax]

spanky3 said:

My 80 yo mum has been sent an HMRC fine for undeclared property CGT.

You say HMRC have already issued a fine, by which I anticipate you may mean a penalty. How have they calculated whatever they've done - or have they simply fired the starting gun by issuing a nominal fine and are now awaiting the taxpayer's calculations? It's possible they've guesstimated the tax by looking at Stamp Duty records but if that's the case they won't have allowed for deductible expenses such as costs of acquisition and costs of disposal.

Lots more information needed and someone needs to get a handle on it a.s.a.p. Since arrival of the new declare and pay regime on properties it can be tricky to claim "I didn't realise" because there will almost always be a professional solicitor or conveyancer who's handled the transaction and, if they are even 10% competent, will have raised the relevant questions.

[Panamax]

spanky - in those last few posts you've got some pretty heavyweight guidance. This situation needs the "emergency button" pushed with a view to getting it under control. Not the panic button, but definitely the emergency button.

[tight fart]

You’ll need to get a valuation from the time mum stopped living there, hopefully the HMRC will be lenient in these unusual circumstances.

[spanky3]

Thanks all, she's had a letter giving her until may to respond so I'll find an accountant and work out what needs to be done. After some digging I suspect the liability won't be huge - I think she'd only be liable for CGT on her 50% of the gain since 1982 less a kitchen and an extension and then only about half that as she lived there until 2000. Still a pain though and all because my dad didn't send the form off leaving her owning a property without realising.

[Marcellus]

Just a thought... which would be the greater CGT liability - 50% of the house she jointly owned with her deceased husband or 100% of the CGT liability of her current flat?

and what would be the cost of working out what the 50% is?

might it not be cheaper in total cost terms to say - the house is the primary residence and therefore 0% CGT/IHT liability the flat is an investment property which I'm due to pay CGT when I sell......