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It's me again with a CGT problem

What is the cost price ??

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Client and his sister inherited a house in Nov 1999 with the proviso that it would be occupied by their mother for as long as she wanted to and could only be sold when she had left, which whe did in June 2017. In accordance with the will mother paid no rent only rates, insurance and maintenance costs. The house was sold in March 2018

My client is the brother and my question is:- Which is the purchase price ?

The probate value in 1999 or the value when the property was free of mother and could be sold 

There is a difference of about £200000 so it matters

 

Thanks for your wisdom

 

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16th Jan 2019 15:51

Confused by dates - they inherited but she had already left?

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16th Jan 2019 16:04

You're absolutely right mother left in 2017 not 1977. Sign of age

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By DJKL
16th Jan 2019 16:25

So, does property on first death vest in some trustees and did she have an income in possession re the property up to 2017, or does she still have an IIP re its value if she is still alive, is the 2018 sale a disposal by an ongoing trust?

Who owned the house before November 1999 that granted Mother right re use?

Did she hold an interest in it herself at that juncture and children only left say late father's interest in terms of his will after a life interest extinguished?

Is mother still alive, what happened in 2017 when she moved out, what substitute accommodation has been provided for her and who paid and why did they pay?

I would be hurrying back to the 1999 event as my starting point to establish all the facts re what her right was over, I would not be trusting children possibly telling you "we inherited it in 1999", they may believe that but it may not be the case, they may have, in 1999, merely become trustees who are also beneficiaries following the end of a life interest..

Find out how she got the use, if via a will get a copy of the will, once read and interpreted decide what next e.g talk to solicitors who dealt with things/copy of possibly 1999 probate, if on point etc.

The one thing I would not do is trust the interpretation of events from your client, he may have misunderstood

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16th Jan 2019 16:28

On basis of facts given I'd say probate value.

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16th Jan 2019 18:11

If the answer is £200,000 higher than PV, then a gain (rough calculation: £200,000) is taxable on someone absent a claim. That someone may be the PR(s)/Executor(s). Who sold the house, if not the PR(s)/Executor(s)? On what basis?

You need the facts. Which, as DJKL says, means you need the paperwork.

And you might get yourself a new client too - the PR(s)/Executor(s).

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17th Jan 2019 10:44

Further information
My client is the son - one of the executor/trustees
The house was owned by Granny who died Nov 1999 and left the house in trust for her 2 grandchildren with the mother's lifetime interest in that it could not be sold without mothers permission
Mother lived in the house rent free but paying all the running costs.
Mother went into a care home in June 2017 and the house was sold by the executors. Her care is being funded by the local authority.
On checking the will this appears to be wrong and the sale proceeds should go towards Mother's care coats.
? which base price for CGT or now I'm thinking possibly I may have a different problem tied up with Trust

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to bernard michael
17th Jan 2019 12:12

Problem? Client, as I said.

Are both the life interest and the right to prevent sale specified, or are you (wrongly) deducing the one from the other?

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to bernard michael
17th Jan 2019 12:14

Edit: No need to say it twice. (Well, we'll see!)

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17th Jan 2019 14:33

The plot thickens
In the will the house is in trust to be occupied by mother during her life and not sold without her permission. This fact is registered at the Land Registry
The daughter ( the other trustee for whom I do not act) exercised mother's power of attorney when she went into a care home with dementia to sell the house. This was accepted by the Land Registry
The will says that any proceeds of sale of the property are to be used to buy another property for mother to live in. On mother's death the son & daughter inherit without further tie
Because of the dementia situation this hasn't happened and the money is on deposit
I'm beginning to wonder whether there is a taxable CGT transaction by my client or not or iperhaps something else

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to bernard michael
17th Jan 2019 15:27

It sounds as though any capital gain is likely to be eligible for principle private residence relief. Trustees have to claim the relief as it isn't automatic. Whether the trustees have acted correctly and what should happen (legally) to the proceeds is another matter entirely! Though a life interest normally only gives the life tenant a right to income so, if the capital has remained in trust, and the power of attorney gives the daughter the right to consent to the sale on her mother's behalf, all may be well. If the mother is entitled to the income, I would expect it to count when assessing how much the local authority will pay but that's all going to hinge on the precise terms of the trust. I doubt that the daughter could consent to the breaking up of the trust and appointment of capital to other beneficiaries under the PofA as this would probably not be seen to be in the best interest of the mother and a PofA doesn't give you a right to give assets away, I believe.

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17th Jan 2019 15:45

Thanks for the interesting thoughts.
I'm NOW told mother is paying for her care out of her other income/assets so at least in the short term the house sale proceeds are not being utilised on her behalf. If she lives a long time I don't know what will happen and frankly I don't want to.
This will run & run
My thoughts now are it's a tax liability for the trust and not the son & daughter

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to bernard michael
17th Jan 2019 15:55

From what you have said, that's right - but there may be no tax if full PPR relief is available.

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17th Jan 2019 15:56

Got it I think
This from HMRC CGT manual
"Trustees pay no Capital Gains Tax when they sell a property the trust owns. It must be the main residence for someone the trust says can live there."
Therefore no CGT for the period Nov 1999 to June 2017

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to bernard michael
17th Jan 2019 16:55

That's right (though from the HMRC idiot's guide not the manual, I think). The manual guidance is from here:

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65400p
And don't forget the relief has to be claimed. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65440

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17th Jan 2019 17:28

This:

bernard michael wrote:

The will says that any proceeds of sale of the property are to be used to buy another property for mother to live in.

is indicative of a full (and ongoing) IIP trust (which forms part of mother's IHT estate). Accordingly, I agree with cathygrimmer.

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18th Jan 2019 09:51

Thanks everyone The consensus with which I am pleased to agree is that it's a trust tax problem and with PPR being claimed no or almost no tax payable.

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