Capital Gains Tax on sale of house used to fund care?

[oilovlam]

There is an important bit missed out of this, if the house was owned before March 82, the March 82 value if higher should be substituted.

Then this gives the basic gain, ant this is then spread over the number of years.

So bought in 67 £5k, value in 82 £50k sold 17 £350k - rough figures - may not be valid

Gain is £300k which is £6,000 per year

Moved out in 2012 -and let for 5 years

so 45 years for PPR - gives £270k exempt on this

Last 3 years exempt as went straight into care £18k exempt

Leaves a gain of £12k

Less £40k lettings relief means no gain.

If the house had been empty, so no letting relief the there is an annual exemption of £11,100 so there would be a gain of £900.

So it looks like the CGT liability isn't too bad....it is 'effectively' based on the value of the house at the point the person goes into the CH (or 3 years after that date). But the best advice would be to consult a professional (accountant/financial advisor??) to avoid any nasty shocks in the future. It would be awful to create a substantial tax liability when a bit of planning could avoid it.

I presume there are ways to estimate what the property was worth in '82 and perhaps find out what it cost originally?

 

[jugglingmum]

The original cost should be on the land registry (it isn't always) assuming the house is registered. It only costs a couple of £ to view a land registration I think (well it does in work, but we do find sales prices haven't always been recorded on the register when they should have been).

I don't know about 82 values, but having sold my mum's house this year I need to identify it, as she didn't go into care but sheltered extra care, and it took nearly 3 years to sell it (chocolate teapot brother was meant to be dealing with it)

I don't think saying it is based on value of house when someone goes into care is really correct, it is just that the increase is spread.

EG I bought my house in 95, by 2000 it had more than doubled in value, but then it stayed about the same for the next 15 years, but has increased again massively in the last 3 years.

 

[Pete R]

There is an important bit missed out of this, if the house was owned before March 82, the March 82 value if higher should be substituted.

I was hoping you would pop along. You always seem to know about this stuff.

 

[lemonjuice]

Really useful information jugglingmum.

We do need people with knowledge and experience, which is one important point about this site, with a wide variety of people, because so much of this is a minefield.

Thank you to the OP too for raising it as it has been going through my mind for a while.

 

[fortune]

I think Jugglingmum is right about this. CGT got reset to 1982 values. I think it is called indexation. So the uplift in value would date from 1982 value. However I suggest you talk to an accountant, they'll know immediately.

 

[jugglingmum]

There is no indexation on personally owned assets anymore. It was abolished a good few years ago.

If an asset is owned before 31 March 82 you use the March 82 value, or if purchased later you use the cost.

For assets owned by limited companies indexation does still apply plus other complexities, but not relevant when we are talking about a house.

 

[tigerlady]

If the husband or wife continues to live in their jointly owned home after the other one goes into care, and dies before the one in care, is there any CGT payable then? With the allowances, there would normally not be any inheritance tax, but I am alarmed to think that there might be CGT. My husband has been in care for 2 and a half years but if, say, I died in 3 years time and he was still alive, would CGT be payable on his half after the house was sold? There's a big difference between what we bought it for and its value now, as we extended it and totally renovated it.

 

[jugglingmum]

Then write to HMRC for advice ( they don't bite)

HMRC normally take 3 months to deal with post, it is dealt with strictly in order of receipt.

With self assessment they are not very helpful normally as it is the taxpayers responsibility to calculate their tax.

Long gone are the days of helpful inspectors at the end of the phone or replying to a letter.

 

[Kevinl]

Write down all the facts you have: dates, purchase price, value in 82 (or guesstimate), current value. Did the owner own house outright from start, or was it jointly owned and half inherited when partner died? Cost of any major improvements- new roof, extension. Estimated legal fees.
Then write to HMRC for advice ( they don't bite) or make an appointment with CAB .

But why? Your principle private residence is exempt from CGT and for a further 3 years after you go into full time care. There's nothing been said by the OP that this isn't the case here, the lady went from her own home into care it's really that simple, as long as the property isn't a buy to let or rented out then it's exempt...end of story.
K

 

[Saffie]

I find the way this thread has developed from the OP's original post quite confusing and concerning. This lady owned her own home, had to move into a nursing home and her own home was sold, presumably once other capital was exhausted. Isn't that a simple fact? I had no idea that capital gains would be involved with this at all.

I understand that if a house is no longer lived in because the resident now lives elsewhere it becomes an asset so am not surprised that CGT would apply from that point but why is the price paid when it was originally bought being mentioned?
You don't pay CGT when you selling a house to buy another or decide to rent instead even if the selling price is hundreds of thousands more than the house originally cost.
At least I' d never thought you did anyway. So why would this be any different, apart from any intervening years between entering the Care home and selling?
Or am I being particularly niaive - which wouldn't be that unusual!

 

[lemonjuice]

I find the way this thread has developed from the OP's original post quite confusing and concerning. This lady owned her own home, had to move into a nursing home and her own home was sold, presumably once other capital was exhausted. Isn't that a simple fact? I had no idea that capital gains would be involved with this at all.

I understand that if a house is no longer lived in because the resident now lives elsewhere it becomes an asset so am not surprised that CGT would apply from that point but why is the price paid when it was originally bought being mentioned?
You don't pay CGT when you selling a house to buy another or decide to rent instead even if the selling price is hundreds of thousands more than the house originally cost.
At least I' d never thought you did anyway. So why would this be any different, apart from any intervening years between entering the Care home and selling?
Or am I being particularly niaive - which wouldn't be that unusual!

I'm in a similar position, having rented out my mother's house to help pay towards fees.
From my understanding Saffie,( and I think this is totally unfair) but it is to do with the fact that after 3 years vacancy the sufferer's 'home' becomes their NH and their former home an asset and therefore CGT is payable and that involves the 'gain' from when the house was purchased. This again is another tax on the person, who through no fault of their own has to finance care at huge cost.

As if the PWD's family hasn't got enough to cope with trying to constantly juggle the finances. It also makes a mockery of the government's assurances that no person will have to sell their home to fund their care. Because with the length of time that most PWD spend in that last stage pretty much ensures their increasing care needs will mean their house has to be sold.

 

[Pete R]

I find the way this thread has developed from the OP's original post quite confusing and concerning.

The OP's question was answered and the OP seems happy with the responses. LJ asked an additional question which was answered and although not happy with rules (me neither) was happy with the answer. Unfortunately someone else came along and would not accept the rules and obviously had not looked at the links posted.

Threads often drift away from the OP but I can't see what is "concerning" about this one.

 

[jugglingmum]

I advised contacting HMRC because the OP wants reassurance and because other posters have slightly different queries.

A while ago (Over 10 years) this would have been correct, however with the advent of self assessment HMRC have closed contact centres and the words self assessment mean it is the tax payers responsibility. The backlog on post is massive, such that even when professional advisers write in, replies take months. If someone writes with a query such as this they are frankly likely to be referred to the web links that others have posted on here.

Like it or not this is the way it works, there are many articles in 'Taxation' and other industry publications about how it is not fair on those in situations like this - but that is the way it is.

As far as Saffie's query goes:

The way the legislation is written is what has to be followed so the gain is always calculated as sales price less original cost OR March 82 value if purchased before March 82. The change of use in the middle is not relevant, this may seem unfair but this is the way the legislation is written.

Once the overall gain is calculated, then the exemptions are applied, so private residence exemption for the years it was lived in and the last 3 years if going straight into a care home. If this doesn't cover all the years then further exemptions apply.

The lettings exemption of £40,000 if it is rented out. I can see this going shortly with the massive clampdown on buy to let and the rental market.

There is also an annual exemption of £11,100 to apply.

So few houses will trigger a cgt liability.

All income from investments is taxed - eg rent on letting the home out, dividends and interest on monies invested, all gains on sale of dividends and and other assets, once the house is no longer lived in for tax purposes it is treated as an asset.

These rules may be harsh on someone going into care, but they are what they are.

 

[Saffie]

The OP's question was answered and the OP seems happy with the responses. LJ asked an additional question which was answered and although not happy with rules (me neither) was happy with the answer. Unfortunately someone else came along and would not accept the rules and obviously had not looked at the links posted.

Threads often drift away from the OP but I can't see what is "concerning" about this one.

I said that I found it concerning rather than that anyone else might.
That was for the reason I gave, in that it had not occurred to me that CGT would be relevant when selling a house that was the main residence of a person.
JM has addressed my concern and reassured me that this is not so unless it is no longer the main residence for any reason including entering a care/nursing home. So that's fine and thank you JM.

My house was bought in 1980 for a much lesser sum than it would now fetch and it is not as yet registered with the Land Registry though I intend to do this in the near future.