Capital gains tax help please 🙏

[SantasLargerHelper]

Is anyone able to advise please how we calculate this, as I am finding it so complicated.

Basically 10 years ago me, my mum and my brother inherited a property worth approximately £90k at the time (but this was a guess and may be an undervalue). It was rented to a long term tenant so we had no involvement with it. She has now died and we are selling it for £225 k

How do we work out CGT? I am a higher rate tax payer, my brother is ordinary rate, my mum is retired. Are there any exemptions, or allowances we can make use of?

Any advice would be greatly appreciated.

I’m assuming you each own a third, and none of you ever lived in it as your main residence.

This is from memory, but I’m not a tax expert, I’ve just helped a family member with similar.

So the profit from original value to sale is £135k - this is split three ways, £45k each. You each have £3,000 annual exemption, so £42k each will have capital gains tax charged on it (you can deduct estate agent and solicitor fees from this as well).

You calculate the tax for each of you individually based on your own tax rates - if the gain takes your brother over the basic rate threshold (gain plus his regular taxable income is what counts), he’ll have to pay the higher rate for the excess above the threshold. You will pay the higher rate for all of yours. I think your mum will calculate it in the same way as your brother - add the gain to her income, pay higher rate on anything above the threshold

ETA - you can also deduct from the £135k the cost of any improvements you made that increased the value of the house eg an extension. But not regular maintenance and repairs. It sounds like that won’t apply here though?

Thank you so much, so we each have to do separate returns. That makes sense I was wondering how we did that.

You also each have to submit an online property CGT return and pay the CGT within 60 days of the sale. You have to estimate the proportion of the gain at basic and higher rate if actual earnings aren’t known until end of tax year. After end of tax year you each submit a self assessment tax return with same CGT details to confirm position along with other income like wages etc and pay/reclaim tax over/underpaid.

You're a star 🌟 thank you 😊

You should already be registered for self assessment as all three of you would have been submitting SA returns each year to declare your share of the rental income profits, and in the year of sale, the rental income profits along with other income will determine how much of your respective higher rate bands are left to use against the capital gains which determines how much of the capital gain is at basic CGT rates and how much at higher CGT rates. Could be quite a complicated year for your tax returns having both rental income profits and capital gain.

You also get a £3000 allowance. It might be worth speaking to an accountant or a financial advisor, just to make sure you get it right. It’s complicated.

You can deduct the cost of the sale from the ‘gain’ - estate agent fees, solicitor etc. I occasionally buy and sell property and have an accountant who works it all out - well worth it. Also was the property valued when probate was done on you mother’s estate?
But whatever the amount is that lands in your bank it’s all worked out individually and as stated needs to be done after the sale. I’d get an accountant to work it out if you aren’t confident.

CGT is 18% and 28% respectively for lower and higher rate tax payers.

It’s 18% and 24%.

HMRC’s guides are pretty readable. The one of capital gains is here:
https://www.gov.uk/capital-gains-tax

It’s really easy using the government website. There is one on the government website that allows you to do a rough calculation before submitting the figures properly. We found it useful and easy to do. Good luck.

As your mother has now died then if her share was valued at the price it is now being sold for for Inheritance Tax and probate purposes, there wouldn't be any CGT to pay on her share - Inheritance Tax is potentially payable instead.

If the property is sold for more than was declared at probate, then the estate will potentially be liable for CGT on the difference between the value declared for probate and the actual selling price. The Estate has it's own £3k CGT allowance

OP’s mother hasn’t died, the long term tenant has.

Oops! Sorry, I misread the post...

to cover all bases and in case HMRC question it, I would also get an estate agent to give a written retrospective valuation price of the property at the point you inherited it. This is then the starting figure you use to work out the gain.

Where it gets complicated is working out how much you pay at 18% and how much you pay at 24%.

If some of the gain takes you into the 24% bracket, that can put you into paying the higher rate for the rest of the tax year.

Not really. CGT is calculated at the end of the annual tax calculation and uses up what's left of the basic rate band first and then higher rate on the excess capital gain.

However large a capital gain, it won't actually change the income tax due, it only affects the CGT due.