CGT on gifting the property to Mother.

[avtarbs@yahoo.com]

I bought a house for £37,000 in March 1997 and lived there for 18 months but due to work reasons I had to relocate. It has been on rent since October 1999.

My wife bought a house in the new place and we had been living there since March 1999.

Now the cost of my house is £95,000. The mortgage is a private mortgage on the house as we intend to live there. I do not intend to sell the house for next 10 yrs. But want to do some planning now to minimize the tax liability.

I had been thinking of the following options:

1. Gift the house to my mother. She does not have any assets and does not have any taxable income. In future we can inherit the house at the later date.

2. Add my mother as a beneficiary so the CGT gains can be divided as and when we will sell the house.

3. Add my wife (she has current house own her name) and my mother as a beneficiary and thus reducing the liability further.


I do not know whether any of the above options will attract the CGT. Please advise ?

I have done the very rough calculations on my CGT


Net CGT = 95,000 - 37,000 * (1 +index let us assume .05) = £56,000

Relief:
I lived in the house for 1.5 yrs and 3 yrs Private relief. So net propotionate CGT will be (4.5/6 (total period since I bought the house).

Net CGT after relief = 56000*1.5/6 = £14000

My CGT allownace is 2*7,700 = £15,400.

So according to my calculations I do not have to pay the CGT if I excercise any of the above three options.

Please could you advise:

1. Which of the option is the best to minimize the future tax liability.

2. Does my CGT calculation especially the relief are correct.

I shall be grateful to the person who can spare his valuable time to answer my doubts.

[demetris]

Your scheme will work to avoid CGT only when you transfer half of the property to your wife. This is because transfers between spouses are a no gain no loss situtation for CGT. Assuming no other gains in the tax year of disposal, the gain should be offset by the annual exempt amount and non-business asset taper relief.

It is not necessary to make your mother a co-beneficiary to achieve the nil CGT.

If you gift the house to your mother, in the vent that you inherit it from her, it will be treated as a gift with reservation if you continue living in it. This means that it will be part of her estate and charged to Inheritance tax with the first £255k exempt of course.

I hope this helps.
Demetris Savva Ba FCCA
http://www.tax-accounting-london.info
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[avtarbs@yahoo.com]

Many thanks for your time in replying my question.

If I have understood you correctly then

1. Firstly I have to transfer half of my property on my wife's name.

2. When the above is done then proceed with the second option of gifting to my mother.

Can you recommend me any one who can do the above for me and approximately how much is it going to cost me ?

Once again many thanks for your time.

[demetris]

Personally, I would be very cautious proceeding with transferring to the mum. Although it sounds sound, there is an element of antiavoidance there which if spotted by the taxman can be construed as evasion. As such, I would definitely obtain proper professional advice and definitely not within the context of a discussion group. It will take some time and research for a qualified accountant to check it out.

As to your questions, the transfer itself is a legal matter for a solicitor to deal with. As to the tax part, a good qualified accountant can deal with it in the context of completing your personal tax return (s). The cost will depend on the complexity of the matter and time spent.

Demetris Savva BA FCCA
http://www.tax-accounting-london.info