Does any CGT liability arise on the sale of shares in the matrimonial home after the occupants have moved out, one going into care? BKL tax adviser Terry Jordan answers this question for Taxation magazine’s readers’ forum.
I have lasting power of attorney for Mr A who moved to a nursing home in December 2014. Before that he lived in the same house since 1961. The house was initially owned with his wife as joint tenants, but in 1999 the arrangement was severed and they became tenants in common. Mrs A died in October 2011. Probate was not obtained because all the bank and savings accounts were in joint names and these and two small shareholdings were simply transferred to Mr A.
It is now necessary to sell the house, and one of the executors of Mrs A has obtained probate. The terms of Mrs A’s will are that her share of the house is to be held on trust for a number of beneficiaries – these include two charities, two minor children and several residents of Poland – subject to a life interest for Mr A.
A purchaser has been found for the house, but I wonder whether there is a capital gains tax liability. The house was valued at £185,000 for probate and the selling price is likely to be £240,000 less associated costs.
The gain attributable to Mrs A’s estate is therefore about £25,000. Is this gain exempt by reason of Mr A’s continued occupation of the property? If not, can we do anything to reduce the liability before signing the contract for sale?
What, if anything, should we tell HMRC and how do we do this?
Apart from this, Mr A has very straightforward financial affairs. He does not pay income tax and his income is from state pension, a small company pension, interest, a few dividends and attendance allowance. Mrs A was not paying income tax before she died. I look forward to replies.
Query 18,618– Attorney.
Reply by Terry “Lacuna” Jordan, BKL
Mr and Mrs A owned the matrimonial home as tenants in common. Mrs A died in October 2011 and we are told that her will left what is now technically called an “immediate post-death interest” (IPDI) in her share in the house in favour of Mr A. Mr A vacated the property in December 2014 when he moved to a nursing home.
It is not clear from the question whether his IPDI subsists in the sale proceeds of Mrs A’s share or whether it ceased when he moved out, but I do not think that is material to the capital gains tax analysis of the position.
The gain attributable to Mr A’s share will be exempt as long as the property is disposed of by December 2017: see TCGA 1992, s 222 and s 225E.
The gain attributable to Mrs A’s share will also be exempt, either by virtue of TCGA 1992, s 225 (if the IPDI had been constituted) or under TCGA 1992, s 225A on the basis that Mr A enjoyed a “relevant entitlement”, being his interest in possession. In both cases a claim is required by the trustees or personal representatives and that would normally be made as part of the relevant self-assessment return.
Had those reliefs not been available, consideration might have been given to vesting the property in the charities and residents of Poland before sale, but the latter would now be within the scope of capital gains tax for any gains accruing after 5 April this year.