Buying a second property and CGT

[Ashlea]

Dear Sir or Madam

Can you please help me with this query?

I own my home outright. I've lived in it for nearly 30 years and now need to sell to downsize and to move to a property with level access. I've had prospective sales fall through for various reasons and lost out on preferred properties as a result. To circumvent these problems, I am now considering buying a second property before selling my main home, and waiting to move into the new property until my main home sells successfully. I would need to raise a mortgage to buy a second property and my daughter has agreed to take out a joint mortgage with me. Can you tell me, at the point at which I eventually sell my main home and have the capital to repay the mortgage on the second home, will I be liable for CGT?

Yours faithfully
Ashlea

[mullet]

The effect of the CG legislation is that as long as you sell property #1 within 3 years of it ceasing to be your only or main residence, then you will not pay CGT on the disposal. And there will be no potential CGT on property #2 until you sell it, but if it is always your only/main residence then it too will be free of CGT.

And an important point for property #2 - there is no issue about taking a joint mortgage with your daughter, and there will be no CGT as long as she isn't a beneficial owner of the property. In simple terms, if you solely benefit from living in it and you will solely benefit from the ultimate disposal proceeds, then you will be the sole beneficial owner.

[Ashlea]

The effect of the CG legislation is that as long as you sell property #1 within 3 years of it ceasing to be your only or main residence, then you will not pay CGT on the disposal. And there will be no potential CGT on property #2 until you sell it, but if it is always your only/main residence then it too will be free of CGT.

And an important point for property #2 - there is no issue about taking a joint mortgage with your daughter, and there will be no CGT as long as she isn't a beneficial owner of the property. In simple terms, if you solely benefit from living in it and you will solely benefit from the ultimate disposal proceeds, then you will be the sole beneficial owner.

Dear Mullet

Thank you for your information and advice.

Once the mortgage on property 2 is cleared, the intention is for it to be my long-term home and for it to be owned in my sole name. But after I die, and assuming I haven't had to sell the property to pay for long-term residential/nursing care care, I would like to bequeath it jointly to my son and my daughter. Would there be any CGT liability at this stage because of the previous joint mortgage with my daughter, or would Inheritance Tax be the only consideration at this stage?

Yours sincerely
Ashlea

[mullet]

Once the mortgage on property 2 is cleared, the intention is for it to be my long-term home and for it to be owned in my sole name.

I'm not sure that you mean that. My understanding is that it would be your long-term home from the outset and that your daughter will no longer be registered as a co-owner when the mortgage clears.

Even if you have a joint mortgage with your daughter, then CGT will not necessarily arise. If she is named on the mortgage but never contributes to any repayments, then if you enjoy the asset by living in it and benefitting from the ultimate disposal proceeds there is a logical argument that you are the sole beneficial owner. And even if she contributed to the mortgage repayments, then such moneys might be gifts or loans rather than the acquisition of an equitable interest in the asset.

Death is a very efficient way of dealing with CGT. On death assets pass to the executors and on to the legatees at market value at date of death - with no CGT liability arising. But in your case CGT would not be in point anyway if the asset had always been your only or main residence. So yes, IHT would be the only issue.