Ask the Experts: Will we pay capital gains tax on the house my mum gifted us?

David Wesley-Yates
2 January 2018


My mother gave me and my husband her house about 12 years ago (she signed it over into our names). She is now 93 and I am just trying to pre-empt the inevitable. Will we have to pay capital gains tax on the property if we sell it when she dies? The property is worth about £300,000. 



If you’re selling a second home, or selling a home that you let out, you might have to pay capital gains tax (CGT). In your case, the gain will be calculated as the increase in the value at the date you received the property from your mother 12 years ago and the value you sold it for. This is the case even though there may also be inheritance tax (IHT) to pay on the home when your mother dies.

However, when you sell a second property, a proportion of the profits you make can be earned tax-free. This is your CGT allowance. In the 2017/18 tax year, you can make £11,300 profit before you pay CGT. If you’re a basic rate taxpayer you’ll pay 18% CGT on property sales over this profit allowance. Higher-rate and additional-rate taxpayers will pay 28%. You don’t need to pay CGT when selling your main home.

If you use more than one home, you can nominate which will be tax-free. It doesn’t have to be the one where you live most of the time.

Generally, it makes sense to nominate the one expected to make the largest gain when you come to sell it. You have two years from when you get a new home to make the nomination. Remember, you don’t get tax relief if you bought your home just to sell it on and make a gain.

Assuming your mother no longer lives in her home, the gift of her house to you is a potentially exempt transfer for IHT purposes. Because more than seven years have passed after making the gift, meaning no inheritance tax is due.

If your mother is still living in the property, this will be a gift with reservation. Essentially, this means it still counts for IHT purposes when she passes away and the property will be included in her estate after she dies and subject to IHT at up to 40%.

David Wesley-Yates is a chartered tax adviser at Red & Black AccountancyFind out who our experts are on the Ask the Experts homepage.

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