CGT liability on joint assets follow death of spouse

P

Polly 123

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Just looking for some guidance please on the following scenario, im a bit confused on the correct figure to use:

Husband & Wife buy small parcel of land for €35k
Sold part 4 years later for €20k
Following death of spouse remaining part of land sold for €40k. Now trying to work out CGT liability for surviving spouse.

Bought for €35k jointly
Part sold year 4 for €20k
Remaining part sold for 40k -after death of spouse, disallow inherited portion ie 20k.
Remaining spouse liability is 17.5k (which is their part of the original purchase price) less gains €10k (part sale yr4) €20k on sale so net gain is €12.5k) less initial purchase & selling fees approx 6k in total (or can they only claim half of these) less €1,270 personal allowance so €12.5k less €6k less €1,270 and balance at 33%.
Many thanks in advance.

Edited to correct my figures
 
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Sorry jpd, I just confused as to the figure I need to use for the remaining spouse for capital gains return.

Original Purchase price €35k so I would assume it's seen as €17,500 for each spouse. Sold part for €20k so I'm presuming again that's split, so that's €10k each. Then spouse dies, everything left to surviving spouse so I again presume the only cgt liability is for the surviving spouses part so €17,500 (initial purchase price) €10k gain on sale after 4 years, and 20k gain on final sale so net gain €12,500.ie €17.5k-30k (2 sale gains)

I hope this makes more sense
 
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First of all we have to look at the tax treatment of the year 4 transaction, since that was a disposal.

Land was bought for 35k.

Year 4: part of the land was sold for 20k.

Question: What was the market value in year 4 of the remaining part of the land, the part that was not sold? Let's say it was 25k.

So, to calculate CGT due (if any) on the year 4 disposal you aportion the original purchase cost (35k) between the two parts of the land in proportion to their value in year 4. So the acquisition cost of the land that was sold in year 4 is:

35k x (20k/(20k +25k)) = 15,556

So you have a gain accruing in year 4 of €20,000 - €15,556) = €4,444. You should have accounted for CGT on that in year 4. Yes, it's divided equally between the two co-owners. If that wasn't dealt with at the time it's something that will need to be sorted out now. Talk to an accountant about how to manage this at the lowest cost in interest and penalties.

If the acquistion cost of the part of the land disposed of in year 4 was €15,556, then the acquisition cost of the rest of the land, that you've held up to now, is €(35,000 - 15,556 =) €19,444. Assuming the couple held the land as joint tenants (which is the norm for a married couple who co-own property) the surviving member of the couple is now the sole owner of the remaining land, and is treated as having acquired it for €19,444. If they sell it for €40,000 there'l be a chargeable gain of €20,556, with CGT computed accordingly.

Note that all these calculations are based on my assumption that the value of the land that was not sold in year 4 was, at that time, €40k. I plucked that figure out of the air. You'll need to identify the correct figure and plug it into these calculations.
 
TomEdison said:
First of all we have to look at the tax treatment of the year 4 transaction, since that was a disposal.

Land was bought for 35k.

Year 4: part of the land was sold for 20k.

Question: What was the market value in year 4 of the remaining part of the land, the part that was not sold? Let's say it was 25k.

So, to calculate CGT due (if any) on the year 4 disposal you aportion the original purchase cost (35k) between the two parts of the land in proportion to their value in year 4. So the acquisition cost of the land that was sold in year 4 is:

35k x (20k/(20k +25k)) = 15,556

So you have a gain accruing in year 4 of €20,000 - €15,556) = €4,444. You should have accounted for CGT on that in year 4. Yes, it's divided equally between the two co-owners. If that wasn't dealt with at the time it's something that will need to be sorted out now. Talk to an accountant about how to manage this at the lowest cost in interest and penalties.

If the acquistion cost of the part of the land disposed of in year 4 was €15,556, then the acquisition cost of the rest of the land, that you've held up to now, is €(35,000 - 15,556 =) €19,444. Assuming the couple held the land as joint tenants (which is the norm for a married couple who co-own property) the surviving member of the couple is now the sole owner of the remaining land, and is treated as having acquired it for €19,444. If they sell it for €40,000 there'l be a chargeable gain of €20,556, with CGT computed accordingly.

Note that all these calculations are based on my assumption that the value of the land that was not sold in year 4 was, at that time, €40k. I plucked that figure out of the air. You'll need to identify the correct figure and plug it into these calculations.
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This makes so much sense, alot more sense than the way I put my question, thank you very much, I will pull out all the information for the Accountant, thank you.
 
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