In 1991, my parents added my name to the deeds of the family home. At the time the property was valued at £120,000, so my third was worth £40,000. Then in 1993 my father decided to put the property jointly in the names of my mother and me.
I bought my own cottage in 1995 for £83,500. A few months later, I moved into my parents’ home to care for them. My father died in 1999 and my mother died in 2017. The home was then put in my sole name.
I am aged 75, single, without dependants, and a non-taxpayer. I pay council tax on both properties, having had to use savings, as my sole income is state pension.
Life is frugal: I haven’t had a holiday in many years and am careful with food, etc.
Now I feel I must make the most of the time I have left. Consequently, I am putting my cottage up for sale for £360,000.
I continue to live in the former family home, which is now worth around £475,000 but there are steps from room to room and a large garden, which I now find difficult to maintain. I will probably have to move in the near future. My concern is what taxes I will I face if I sell?
Before making any decisions it is important that you think through all of the options available to you, including whether to sell the cottage or to sell the family home or perhaps rent out one of the homes.
The sale of a residential property is potentially liable to capital gains tax (CGT). The tax rates are 18% for basic-rate and non-taxpayers and 28% for higher- and additional-rate taxpayers.
However, there is exemption from capital gains tax when people are selling their principal private residence. Those who own more than one home, such as you, can make an election to determine which one should be treated as the main residence.
You can only make an election for a home to be classified as your main residence if you have lived in it at some point while you owned it and you can change your election although this change cannot be backdated by more than two years.
If you haven’t made an election, then HMRC can decide, based on the facts, which property should be treated as your main residence. It is probably a good idea for you to speak with HMRC and explain your circumstances and it should be able to give you guidance about any potential tax liability if you sell either of the properties.
However, even if you sell a property that is classified as your principal private residence, part of the gain you make could still be taxable if the property has not been your main residence throughout the time you owned it. However, there are some absences which HMRC ignores.
These include periods totalling up to three years if both preceded and followed by residence and during which time no other residence was exempt. The last 18 months of ownership is also exempt, provided that the property was used as your main residence at some time.
If there is a CGT liability, you can deduct the costs of buying, selling or improving the property from this gain. These can include estate agents’ and solicitors’ fees and the costs of any improvements that you have made, but not normal maintenance such as decorating.
You can also use the Annual Exempt Amount. This is a tax-free allowance that permits you to make capital gains of £12,000 for the 2019/20 tax year without paying any tax.
As you are single with no dependants, inheritance tax should not be a major concern for you. There will not be any inheritance tax liability until your death and then your estate will pay that, based on the total value of your assets.
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