Jim Sawer, Partner in our Private Client team, writes in Moneywise answering the question on what tax implications would apply on the proceeds of a sale of the family home.
The reader's father transferred ownership of their family home in November 1995 by Deed of Gift to him and his siblings. The reader's father died suddenly in April 1997 and his mother has continued to live there until recently. The reader is looking to sell to eventually sell the house after the COVID-19 pandemic and wants to know what the tax implications would be for himself and his two siblings on the proceeds of sale of the family home.
When the property is sold, you, your brother and your sister will each be liable to Capital Gains Tax (CGT) on your share of the proceeds. CGT is calculated on the difference between the property's value at the date of the gift in November 1995 and the sale price (the gain). The chargeable gain is reduced by any sale costs and any capital expenditure on the property over the years."
Each of you can set your annual exemption of £12,300 against the gain and the balance is taxed at 18% or 28% depending on whether you're a lower or higher tax payer. From 6 April 2020 sales of UK residential property needs to be reported and the tax paid within 30 days of completion."
If the family home has been the principal private residence of any of you for any period of time since November 1995 then all or a part of your / their share of the gain would be exempt from tax."
Jim notes that the mother had been living in the family home until recently but this doesn't impact on the CGT position. The reader's question suggests the gift was an outright one to them and their siblings. Though the understanding was that your parents continue to live there, it would be difficult to argue that an implied trust had been created so that the principal private residence exemption might have applied to the gain because a “beneficiary” was in occupation.
While the questioner was concerned with Capital Gains Tax, there are, of course, Inheritance Tax “Reservation of Benefit” issues where, as here, a father gave away his home but continued to live there. See Jim's blog Inheritance Tax - why do so many fall into the 'Gift With Reservation of Benefit' trap? for more information.
This article was first featured in July's 2020 issue of Moneywise.
About the author
Jim Sawer is a partner in our Private Client team. He has a broad private client practice and has advised families in the UK and overseas, including those with commercial and landed interests, for over 30 years. Clients appreciate his ability to identify the true crux of a matter promptly and his results-orientated approach to resolving private client issues in the family context.