My mother in law, M, and her brother, B, inherited a house 40 years ago. One single freehold. A three storey house split into three flats. Owned as tenants in common. for their whole 40 years of ownership, the two top floor flats have been rented out and the ground floor flat has been occupied by M as her only home. Now they are about to sell - with a choice of selling the whole building freehold to a developer - or of, quite easily, creating 3 leasehold flats and selling these individually, retaining the freehold themselves.
The question is CGT. B is quite resolved to paying CGT on his gain. M really cannot affford to pay much CGT if she is to move nearer to family. So. I'm seeking advice on what is the correct way to calculate CGT for M (a) if the whole property is sold freehold or (b) if three long leasehold flats are sold separately ?
Specifically, too, in the latter case, how strong is the argument that M should have PPR relief on the whole gain attributable to the ground floor flat ?
(Always been her home; as owner she is entitled to occupy....)
With many thanks !
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Hasn't M simply got a half share in all 3?
I think whether it's tenants in common or a joint tenancy, M has a half share in each property for CGT purposes. Therefore she will have a gain on her half of each property, but with her gain on the ground floor flat being relieved by PPR relief.
If the whole property is sold freehold, you'll need to apportion some of the proceeds (and March 82 value) to the ground floor flat. (If you haven't already got a March 82 value for the whole lot, I'd suggest asking for a separate one for the GFF.)
If the long leashold flats are sold separatety, you'll still need a March 82 value for those and a separate one for the ground floor flat. (Whether by apportioning a value you've already got, or asking for separate values.)
It is a question of how tenancy in common works
Many thanks.
As I understand it, they each have a 50% share in the whole building but no specific part of it. However each owner has the right to occupy and M has occupied the downstairs flat, alone, for 40 years. She doesn't "not own" that ground floor flat. Hence my search for an argument.
I don't have access to a tax cases database...but perhaps there is a case on point ?
Refer to HMRC CGT Manual
There is some useful stuff in the HMRC CGT Manual eg ref CG70502 :'...it will not necessarily be the case that tenants in common will have equal interests...'
Joint owners
Husband and wife situations are different, but otherwise, I think it depends on who put what in and what evidence there is of the sharing ratio - I suspect you'll have trouble convincing the Revenue that it's anything other than 50:50, where the two owners have inherited. My understanding is that a trust of land has to be evidenced in writng, though that doesn't necessarily mean a formal deed of trust (for example).
Maybe ask who's spent money on the ground floor flat in the last 40 years. If it's all been M, is that evidence that they regarded it as 100% hers?
It might be helpful, if you have a property solicitor friend, to ask wo would get what in the case of a dispute between the two.
@MJShone - written evidence is only required for express DoTs - resulting, implied or constructive Trusts do not need such written evidence.
It might be worth investigating to see if the property qualifies as settled property for CGT purposes - probably unlikely with the rental aspect?