CGT advice please

[stevew02]

Hi All,

Thanks for your recent advice on another post I made. Linked to that post, I be really grateful if some can confirm the below for me please.

I bought a place as my primary residence in Feb 82 for £37k. I lived there until Sep 1998 and have kept it as my second property since then. I now plan to sell this property to my daughter-in-law for £210k.

From a tax perspective, is the following correct:

210 - 37= 173K
other costs - 2k (solictor fees) + 5k (double glazing in '86) + £10,900 (CGT exemption) + 199/361 (when property was my main residence = £69,601

At 28% this would be £19,500. Is there anyway that I can reduce the tax?

In addition, my daugther in law would be exempt from stamp duty as she is a first time buyer (although she may decide to let the property out in the medium term). Is this correct?

Many Thanks,
Steve

[mullet]

How have you arrived at £210,000. Is that the true market value? Whatever you agree between you and your daughter, you will be deemed to dispose of the property at market value. The period of ownership for PRR starts at March 1982 so the denominator and numerator should both be reduced by one month. Otherwise, your computation is broadly correct.

[mullet]

Is there anyway that I can reduce the tax?

Most forms of relief require you to spend more than the tax that you would save. For instance, you could invest some of your money in shares in an EIS company. But that could be a risky investment. You get to keep 72% of the taxable gain, but remember that the effective rate of tax is more like 11%.

Was the property ever let as residential accommodation, or did you just keep it as a second home.
If you had two true homes (residences), then did you make a nomination in favour of your other property within 2 years of its acquisition?

[pqtaxation]

..... Otherwise, your computation is broadly correct.

I’m not so sure as there are some clear errors in OP’s draft calculation (e.g. no last 36 months relief, PPR relief on annual exempt amount of £10,900).

If OP sell all of the house in March correcting per his draft calculation :

Total period owned for CGT (March 82-March 2012) =360 months
Main residence about 16.5 plus last three years = 198 +36= about 234 months
Cost = 37+2+5 = £44k
Gain = 210 sale -44costs = 166
Unrelieved gain = (360-234)/361 about 35%* 166= 58
Taxable gain = 58 -10.6 annual exempt amount = about £47.4k (rather than your estimate of £69.6k)

As Mullet comments, presumably OP has documentation to show that £210k is a reasonable estimate of “market value”, has never let out the house and elected new house as main residence from Sept 1998.

Isn’t one obvious approach to CGT mitigation is to (contract to) sell her only 50% this tax year ending 5/4/12 and after that date a separate contract to sell remaining 50% next tax year so you get an annual exempt amount against each partial sale?; assumes no other capital gains.

[mullet]

Otherwise, your computation is broadly correct.

Sorry, didn't plan to look at it closely until the top line was established as correct. Thanks to PQ for looking properly.

[Peter D]

Remember that the costs of acquisition and sales and legal fees are deductible. Are you the sole owner and are you married. Regards Peter

[stevew02]

Thanks all.

Would I need to send documentation confirming the value of the property to HMRC? If so, what would be the best way to do this? Would a letter from an estate agent suffice?

Steve.

[stevew02]

Peter D - I'm a widower.

PQ Taxation - in order to buy 50% this year and 50% next tax year, do I simply instruct my solictor to draw up two contracts? Based on your calculation - would I be paying 28% on the gain?

Thanks,
Steve

[pqtaxation]

Peter D - I'm a widower.

PQ Taxation - in order to buy 50% this year and 50% next tax year, do I simply instruct my solictor to draw up two contracts? Based on your calculation - would I be paying 28% on the gain?

As a widower, your wife's annual exempt amount is not available to use.

Suggest not to risk compromising solicitor - just tell him you're gifting 50% now and a later date tell him you want to make a further gift ( slightly more leal costs but he can provide support for 2 unconnected transactions; there's a small other advantage in that maket value of second gift of x% will be less than x% of entire market value - solicitor will explain that at that later time).

Whether you pay CGT at 18% or 28% will depend on your income and possibly age (personal allowance) - will need details to tell you.

[pqtaxation]

a) Would (will) I need to send documentation confirming the value of the property to HMRC?
b) If so, what would be the best way to do this? Would a letter from an estate agent suffice?

a) Yes.

b) Not one such letter alone IMO. See my comments about documenting open market value in thread referenced below - two before last post- theirs are not identical circumstances to yours and in yours you might be better to get a professional valuation now as you have exposure to an immediate CGT risk not their contingent IHT risk. Depends partly on how typical (with many local comparables) your property is for the area.

http://www.taxationweb.co.uk/forum/advice-required-on-buying-mums-house-t37325.html