Heather Rogers: Find out how to ask her a tax question in the box below
Heather Rogers, founder and owner of Aston Accountancy, is our new tax columnist.
The first question to Heather comes from someone wanting to know how much capital gains tax they will owe if they sell a property previously shared with their late mother.
If you are seeking an answer on any tax topic, scroll down to find out how to get in touch.
After my father passed away, my mother and I bought a property in 2000.
We are beneficial joint tenants on this property, and my mother and I are the only owners.
I lived up until 2015 in this property with my mother and then I got married and bought a bigger home which I have lived in since.
My mother continued to live alone in the first property.
Unfortunately my mother passed away in January 2022, thereby making me the sole owner.
I would like to sell this property and continue living in my current family home. We have never rented out the first property and it is estimated to be worth £200,000.
What would be my capital gains tax liability, how much private residential relief would I be entitled to and can a deceased person claim PRR?
My mother’s estate consists of only her home and a small sum in her bank account totalling £5,000. I would be very grateful for any advice received.
Heather Rogers replies: I am very sorry to hear about your mother’s death. I understand that you purchased a property with her in 2000 under a joint tenancy arrangement.
This is where co-owners hold equal shares in the joint property, and no matter how many there are they own 100 per cent of the property together.
A joint tenancy can only exist where the tenants have equal interests in the property and those interests were acquired at the same time.
When a joint tenant dies, the asset passes automatically to the other joint tenant or tenants under the ‘survivorship rules’.
It does not require probate and the property cannot be passed through the will to anyone else. Although the administrators have no responsibility for it, they would normally arrange transfer of title.
For inheritance tax purposes, your mother would be deemed to hold 50 per cent, meaning that her half would be included in her estate for calculating anything due.
However, an adjustment is usually made to devalue that share when the joint tenancy agreement is with someone other than a spouse. That is because it would be difficult to sell a property when another person has a right to live in it.
In your case, your mother’s estate value would be below the ‘nil rate band’ for inheritance tax, currently £325,000, so there should be none due on her death.
However, you now wish to sell this property which you jointly owned. You will need a copy of the death certificate to do so, as well as proof of title.
Formerly jointly owned home: You will need a copy of the death certificate to sell this property, as well as proof of title (Stock image)
How to work out how much capital gains tax is due
You will need to make two calculations here.
First, I understand you lived in the property you jointly purchased as your main residence from 2000 until you got married in 2015.
This period of 15 years or so will qualify for private residence relief for you and no capital gains tax will be payable on that period.
This means you will pay capital gains tax on the profits of your 50 per cent, for the period from when you moved out in 2015 to the date of disposal, less the last nine months of ownership.
This gives rise to a charge of capital gains tax on approximately one third of the profit on your share.
You can deduct any costs you have incurred in renovating the property that you paid for, and you will be able to offset your annual capital gains tax allowance which for 2022/23 is £12,300.
Second, there is no capital gains tax due on your mother’s estate and the value of her share in the property at her death will transfer to you tax free.
However, you will have to pay capital gains tax on the increase in value on her share from the date of her death until the date when you sell the property. PRR is not relevant to your mother as no capital gain is arising on the transfer to you.
To sum up, you will need to work out the capital gains tax on your half share of the property and your mother’s half separately, because different time periods and rules apply as explained above, then you can add up the two figures to find out the total owed.
You can do all this yourself, but if it gets complicated you could consider hiring an accountant to help you.
Rules to remember on CGT and property disposals
1. Capital gains tax is charged on a disposal of residential property that is not your main residence at 18 per cent (basic rate taxpayers) and 28 per cent (higher rate taxpayers).
The taxable profit will be added to your other income, and any profits that take your total annual income in 2022/23 over £50,270 will be charged at 28 per cent.
Any profits that do not take your income over £50,270 will be charged at 18 per cent.
2. When you sell the property, you can also deduct costs of acquisition and disposal, such as estate agent and solicitors’ fees, and any costs incurred improving the property, from the profit made.
You also have an annual allowance of £12,300 to offset against any gains made during the tax year.
3. You must make a UK property disposal return to HMRC within 60 days of disposing of the property (from the completion date) regardless of whether there is any capital gains tax to pay or not.
Use this government gateway website for your property disposal return. You can’t use your self-assessment gateway.
Once you have set up your account, you can report your property disposal online.
When HMRC has received the information, it will issue you with a payment reference to pay the capital gains tax owed.
If you use an accountant, you can authorise them to report on your behalf. You can submit a paper form if you have problems with the online system (although HMRC doesn’t like people doing this very much).
4. If you complete a self-assessment tax return, you must also report the disposal and the capital gains tax paid on your return for the year in which the disposal occurred.
There could be additional capital gains tax due, or you could have a refund, as you might have to estimate your other income when submitting the return.
Ask Heather Rogers a tax question
Heather Rogers, founder and owner of Aston Accountancy, is our new tax columnist. She is ready to answer your questions on any tax topic – tax codes, inheritance tax, income tax, capital gains tax, and much more.
If you would like to ask Heather a question about tax, please email her at email@example.com. Please put TAX QUESTION in the subject line.
Heather will do her best to reply to your message in a forthcoming monthly column, but she won’t be able to answer everyone or correspond privately with readers. Nothing in her replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Heather is unable to answer your question, you can also contact MoneyHelper, a Government-backed organisation which gives free assistance on financial matters to the public. It can be found here and its number is 0800 011 3797.