My husband inherited a property from his dad, 50:50 with his sister. After trying to sell it several times we bought my sister-in-law out to free up decision making. The property at probate was valued at £325,000, and after failing to sell it on at a higher value, my husband and I offered to match the £287,000 that was eventually offered by another party. So my husband's percentage of ownership is 3/4, being his inherited 1/2 (£143,500) plus 1/4 (£71,750) of the half we purchased between us (making £215,250), and my percentage of ownership is 1/4 (£71,750). We are now looking to sell the property at auction for around £350,000-£400,000, depending on interest. Assuming the lower figure, if I understand correctly, my husband's capital gains tax (CGT) liability is calculated from the value at probate, not the later lower transfer value? And am I correct to assume my CGT liability will be calculated from the transfer value? Based on these figures, and with full personal allowances each, could you please show me how to calculate these workings so I can prepare accordingly?
Arthur Weller replies:
It seems to me that your husband inherited 50% of the house at a value of £325,000/2 = £162,500 for his 50%. Then he and you together purchased the 50% of the house that your sister-in-law inherited, for an amount of £143,500. So the base cost for his 75% ownership is £162,500 + £71,750 = £234,250. The base cost of your 25% ownership is £71,750. So if sold for £350,000, his sale proceeds will be £350,000 * 75% = £262,500. Since his base cost is £234,250, his capital gain is £28,250. After deducting the CGT annual exemption of £12,300, his taxable capital gain is £15,950. Your sale proceeds will be £350,000 * 25% = £87,500. Since your base cost is £71,750, your capital gain is £15,750. Deduct £12,300, and your taxable capital gain is £3,450.