Inherited Second Property and Taxation


C

Carlos

Hi,

I really would appreciate some halp and advice on my options regarding
my inherited second property.

Last April, my Mother sadly passed away and I was left the family home.
I already had (and still have) my own property which I have a mortgage
on. I have subsequently updated my moms place and have spent £30k+ on
double glazed windows, central heating, new bathroom, guttering, new
kitchen, some internal building work etc.

My initial intention was for me to move back to my mothers property
(all modernized and lovely) and then rent my own property and pay
income tax on the rental income.

If however, I did decide to sell one of the properties, I need advice
on what the best plan of action would be to avoid a great big tax bill.


Here are some details which may help:

Property 1 - Worth £160,000 with a mortgage of £115,000 (my current
principle property.
Property 2 - Worth £180,000 no mortgage (this was the value used to
calculate my mothers estate)
From what I understand, if I sold the second property now I would be
liable to pay 40% tax!! Is that right? Please can someone advice me on
exactly where I stand so I can make a decision.

Many Thanks in advance.

Carl
 
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J

John Boyle

Carlos said:
Hi,

I really would appreciate some halp and advice on my options regarding
my inherited second property.

Last April, my Mother sadly passed away
Condolences to you and your family.
and I was left the family home.
I already had (and still have) my own property which I have a mortgage
on. I have subsequently updated my moms place and have spent £30k+ on
double glazed windows, central heating, new bathroom, guttering, new
kitchen, some internal building work etc.

My initial intention was for me to move back to my mothers property
(all modernized and lovely) and then rent my own property and pay
income tax on the rental income.

If however, I did decide to sell one of the properties, I need advice
on what the best plan of action would be to avoid a great big tax bill.


Here are some details which may help:

Property 1 - Worth £160,000 with a mortgage of £115,000 (my current
principle property.
Property 2 - Worth £180,000 no mortgage (this was the value used to
calculate my mothers estate)

liable to pay 40% tax!! Is that right?
No. I assume the estate was below the IHT Threshold. If you sold P2 now
then you would only be taxed on any gain in value on the sale price over
the value of property on the day your mother died, less any taper relief
(likely nil) and you annual allowance. In addition, if the costs you
referred to above were of a capital nature, not just repairs etc.,,
then these costs could be offset against any gain.

I think a chargeable gain is unlikely based on the figures disclosed but
if there is a taxable gain it will be charged at your added to your
income in order to decide the rate charged. If there is a chargeable
gain then if you make P2 your principal private residence for a while
then so long as you sell it within 3 years of your mothers death then
you should avoid CGT completely.
 
R

Roger Mills

In an earlier contribution to this discussion,
Carlos said:
Hi,

I really would appreciate some halp and advice on my options regarding
my inherited second property.

Last April, my Mother sadly passed away and I was left the family
home. I already had (and still have) my own property which I have a
mortgage on. I have subsequently updated my moms place and have spent
£30k+ on double glazed windows, central heating, new bathroom,
guttering, new kitchen, some internal building work etc.

My initial intention was for me to move back to my mothers property
(all modernized and lovely) and then rent my own property and pay
income tax on the rental income.

If however, I did decide to sell one of the properties, I need advice
on what the best plan of action would be to avoid a great big tax
bill.


Here are some details which may help:

Property 1 - Worth £160,000 with a mortgage of £115,000 (my current
principle property.
Property 2 - Worth £180,000 no mortgage (this was the value used to
calculate my mothers estate)

liable to pay 40% tax!! Is that right? Please can someone advice me on
exactly where I stand so I can make a decision.

Many Thanks in advance.

Carl
AIUI, you could be liable for CGT on the *increase* in value of your
mother's property, less what you have spent on it. So, if it was worth 180k
when you inherited it and you sell it for (say) 250k, the gain is 70k but
the net gain is only 40k after your 30k expenses. You can offset your CGT
allowance (10k?) against this - leaving you to pay tax at your marginal rate
on the remaining 30k. If the inheritance is shared by more than one person
(e.g. sibblings or spouse), there will be more than one lot of allowance you
can use - and less tax to pay. If you sell it for 220k or less, there won't
be any tax, anyway.
--
Cheers,
Roger
______
Email address maintained for newsgroup use only, and not regularly
monitored.. Messages sent to it may not be read for several weeks.
PLEASE REPLY TO NEWSGROUP!
 
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R

Robert

Others have pointed out that any CGT would be based on the increase in
value, not the absolute value. I would point out that the 'purchase
price' used for the CGT calculation is the probate value.

Since the estate was, apparently, below the IHT threshold, you could
have pushed for the highest acceptable probate value that capital taxes
would agree (up to a maximum so that the estate remained within the
nill IHT band). You would then be deemed to have obtained the house at
that higher price so the capital gain (when you later sell it) will be
reduced.

Robert
 

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