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Capital Gains Tax

Capital Gains Tax upon Parents Death

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Clients mother died many years ago & at that point 50% of the parents house transferred into clients name. Father has now died and the house has been sold. Confused over CGT calc. Is the gain simply the proceeds less the market value of the property at date of fathers death (less any costs related to selling etc)?  A lot of money spent improving the property also when client owned 50% share. 

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By johngroganjga
01st Jul 2020 15:54

For the late father's share it's as you say.

For your client's share it's the probate value when he acquired it from his mother, plus his share of any enhancement expenditure in the interim.

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By NicoleM
01st Jul 2020 15:57

You would need to look at Inheritance Tax, for the half that father owned?

With CGT you can deduct the amount spend on improvements, if you have the invoices. You would use the sale proceeds, minus selling costs, minus improvements, minus market value when mother died. Also use the CGT allowance.

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By victoriarchalmers
01st Jul 2020 15:58

Sorry not following. The father died so client inherited it. And has now sold it. Unsure how to calculate gain

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Replying to victoriarchalmers:
By ireallyshouldknowthisbut
01st Jul 2020 16:15

**Edited**

I think you muddied the waters by suggesting your client acquired half of the property on the first death but now you are suggesting its all on the second death. Which is it?

Your base cost is the probate value on second death if all the the second death.

If half on the first death, then your base cost for that half is the probate value on the first death, and the second half as above.

NB as an aside, I would disagree about improvements of residential property being available for CGT relief. This is quite rare. Most of them are merely repairs. Eg new kitchens/bathroom/windows/roofs etc. To make it capital you really have to be building extensions or changing layouts.

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Replying to ireallyshouldknowthisbut:
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By victoriarchalmers
01st Jul 2020 16:34

Apologies. Client got 50% of the property when mother died back in 1991. Father died 2017 so client inherited his half. Now sold so subject to CGT. Are you saying I calculate 50% of the gain with base cost When mother died and then the other half when the father died?

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Replying to victoriarchalmers:
By ireallyshouldknowthisbut
01st Jul 2020 16:44

victoriarchalmers wrote:

Apologies. Client got 50% of the property when mother died back in 1991. Father died 2017 so client inherited his half. Now sold so subject to CGT. Are you saying I calculate 50% of the gain with base cost When mother died and then the other half when the father died?

Yes. If thats what happened. Treat as two assets.

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Replying to ireallyshouldknowthisbut:
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By victoriarchalmers
01st Jul 2020 16:53

Perfect. Makes sense now! Thank you

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By NicoleM
01st Jul 2020 17:17

true, it said 'A lot of money spent improving the property', so perhaps I assumed incorrectly.

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By gainsborough
01st Jul 2020 16:40

...and probably look at discounting the first probate value if half acquired by client on the first death re reduced value where joint ownership exists (I think 10% used to be the generally accepted amount).

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By Tax Dragon
01st Jul 2020 17:05

It might not be quite as simple as the replies make out.

If, say, father had exclusive right to enjoy the property during his lifetime, then you have an IIP situation. That could be very good news for reducing the CGT bill - but very bad news for IHT. Who dealt with father's estate? They would have had to consider the issues. Defo worth getting your hands on the result of their considerations.

That said, 1991 was pre TRNB so the planning they would have done (severing the joint tenancy and leaving to your client) would have been intended to achieve the outcome suggested.

The discount wouldn't have applied on first death (related property) but would on second - but, in any event, you get the figures from the IHT position.

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