Mother-in-law's father's house; CGT and IHT

[jim1970]

Hopefully some kind soul can point me in the right direction. My mother in law has left me in the lurch, as i am an accountant. Unfortunately Management Accounts is my speciality and this seems a quite complicated tax issue!

Title to her fathers house was passed to her before his death 10 or so years ago, her estranged mother lived there until around a year ago, she has since moved out with her new partner.

My mother in law has now let the house. Can anyone give me an idea of where to start for any IHT and CGT calculations?

Also she has released some equity by way of a mortgage, I think interest is allowable on this loan, but what about legal and search fees?

I hope someone can help.

[Tax Accountant]

Hopefully some kind soul can point me in the right direction. My mother in law has left me in the lurch, as i am an accountant. Unfortunately Management Accounts is my speciality and this seems a quite complicated tax issue!

Title to her fathers house was passed to her before his death 10 or so years ago, her estranged mother lived there until around a year ago, she has since moved out with her new partner.

My mother in law has now let the house. Can anyone give me an idea of where to start for any IHT and CGT calculations?

Also she has released some equity by way of a mortgage, I think interest is allowable on this loan, but what about legal and search fees?

I hope someone can help.

There is very little in the way of specific information in your post.

Basically, the legal and beneficial owner of the property (presumable your mother in law) will be taxed to Capital Gains Tax on the increase in value of the property from the date she became the owner to the date she disposes or gifts the property. This gain will be reduced by indexation relief (if any period of ownership falls before April 1998), PPR relief (presumably nil as it was never her only or main residence), dependent relative relief (if applicable), lettings relief (only applicable if also entitled to PPR relief), non-business asset taper relief (probably at 40%) and CGT annual exemption (approx £9,000).

If the property is not sold or gifted to another person, there is no CGT. Instead, inheritance tax will be charged at her death at 40% on the value of her estate in excess of the nil rate band (currently £285,000).

She could consider gifting small chunks of the property each tax year to her daughter (that would be your wife, right? So there are possible advantages of having mother in laws!) to make use of her CGT annual exemption and also to eventually reduce her estate for IHT purposes.

Hope this gives you some food for thought.

You of all people will understand the value of seeking Professional advice.

Ramnik