Question: Ten years ago my husband inherited a share of his father’s property when he died as a joint owner with his partner. My father-in-law’s Will specified that his surviving partner could continue living in the property for as long as she wanted. Both my husband and my deceased father-in-law’s partner are on the deeds for the property. The partner has recently died and the property is empty. Will my husband have to pay capital gains tax on his share when it is sold, even though he could not live there because the partner was in residence?
Answer: It is assumed that your husband is now in possession of the whole property, even though originally the partner owned half of it. If so, she must have transferred her half to him. When your husband sells the property, for capital gains tax purposes he will effectively be making two sales, namely the half which he inherited on his father’s death and the half he has recently acquired from the deceased partner. He will be liable to capital gains tax on the half he has owned for the last ten years, even though the partner was still living there. He will also be liable to capital gains tax on the recently acquired half. However, the base cost for the second half will be the market value of that half at the date the partner transferred it to him. The higher base cost should help reduce the chargeable gain on that part.