CGT Query

[RamblinRosie]

I think I know the answer to this but DH wants me to check with the collective wisdom of Mumsnet before arguing with our accountant.

My father died 15 years ago, leaving his house equally to my sister and me, value £350,000, DH and I took out a £175,000 mortgage to buy my sister’s half.

We have rented the house out for 15 years and have now sold it for £520,000.

Our accountant’s initial calculation for CGT is based on us having paid £175,000 for the property, ie tax to be paid on £355,000.

I think that we should be paying CGT on the difference between the initial value of the property £350,000 (my inherited £175,000 plus the £175,000 we paid to my sister) and the selling price, ie £170,000.

Am I missing something?

I think you're right, assuming the mortgage was cleared.

AIUI CGT is charged on market value at sale less value at acquisition, (presumably probate value in this case), less any outstanding mortgage together with an adjustment for the costs of sale.

The accountant needs to show his workings!!

Market value of entire house, you only purchased 50% with the mortgage.

did you live in the house during any of that time? As those years can be subtracted

Yes it’s the £350k that should be deducted the £175k you inherited plus the £175k you bought, it’s irrelevant that you had a mortgage to buy her out, same would apply if you’d paid her £175k out of cash you had lying around

The relevance of the mortgage is that if, in part or in whole, there is still money owing, it would be the net sale proceeds after clearing it that count for CGT.

No that’s incorrect the mortgage doesn’t come into the cgt calculation at all. The proceeds used in the cgt calculation are the actual proceeds of what the house is sold for you absolutely cannot deduct what you owe on the mortgage

You're quite right.

Brainstorm/confusion with benefit rules.

So does that mean that op will need to pay CGT on £170k (sale price minus value at acquisition)? Minus any deductibles (CGT allowance, improvements, acquisition/sale costs etc)?

Very helpful, thanks all.

Yes

Is it in joint names with your dh or your own name? If it’s in sole name may be worth changing to joint names prior to sale

OP says house has been sold.

Ok bit late now then, its not such a major saving as it used to be now the cg exemption has down anyway

Perhaps the government can help you out here?

www.gov.uk/tax-sell-property/work-out-your-gain

I would be surprised if the accountant is wrong (it's likely not their first rodeo?) - your capital gain is based on your original investment of 175. I would however net whatever value remains on the mortgage off the selling price (as again, that's not your capital gain, you have to pay that back to the bank).

So if you originally owned 175 of equity in the property and had 175 of mortgage, and now the property is worth 520 but you still have an outstanding mortgage of (for simplicity's sake let's say) 175, I would be doing (520 - 175) = 345 as the value of your equity stake, and the capital gain as 345-175 (original equity investment) ie a 170 gain to be taxed.

Health warning I am not an accountant! But this is certainly how CGT works in other transactions. It's about your net financial gain, not a total value, has always been my understanding.

No you do not deduct the mortgage you have still made the same gain whether you financed if with a mortgage or bought it outright for cash. Even if you have to pay all your proceeds to the bank you will still have a taxable gain

Please just stop writing. Stop trying to give advice you are not qualified to offer, it is the opposite of helpful.