CGT on property parents lived in rent free

[melville]

Hi, I bought a house 12 years ago (in my name only) and lived there for 4 and then moved in with my partner (who owned the house and did not charge me rent or take any money) to date.

When I moved out of the property I owned my parents moved in and basically paid the mortgage interest for me.

I have not completed a tax return each year as there was no profit, not sure if this is correct or not?

I have looked on the net and believe I can claim the 4 years +3 as PPR which will leave 5 years liable to CGT.

Is there anything I can do to reduce the CGT other than the annual allowance? I dont think I will qualify for lettings relief? I did install a new boiler and kitchen which obviously never claimed so not sure if they can be offset against the gain?

Many thanks.

[Incredulum]

You are right that 5 years are liable to CGT. You can include SDLT, agents' fees, solicitors fees and any capital improvements. A new boiler and kitchen are likely to be repairs unless you put them in shortly after acquisition or there was an appreciable capital improvement.

I am happy to be corrected by others with practical experience on this point, but there is nothing I can see in s223(4) TCGA to restrict lettings relief to commercial-rate lets. The property was let as residential accommodation. You received consideration (payment of your interest), in exchange for which your parents received a letting. Accordingly you appear to qualify for lettings relief.

[Peter D]

The OP has never declared a rental income or loss to HMRC. He also was not letting the property on a commercial basis and a subsequent claim for Letting Relief is most likely to be questioned and as a result fail.
However the OP will retain 82% of the gain anfter the deductions Incredulum details, pretty good investment. Regards Peter

[mullet]

Nothing in TCGA requires a taxpayer to declare rental income (or rather profits or losses) in order to qualify for lettings relief. Obviously, any failure to notify chargeability to Sch A profits or to include such figures etc in tax returns is a failure, but if the OP was not in self assessment then I cannot see a problem. It appears that there was no profit to declare, and nothing to claim the losses against. I accept though that the filing of property pages is a good indication for HMRC that the property was indeed let.

On the basis of the facts presented ...

Is PRR due? Yes
Was the property let as residential accommodation? Yes

Therefore lettings relief will be due under the usual rules.

[Incredulum]

The OP has never declared a rental income or loss to HMRC.

So what. Like msp I should love you to point out any HMRC guidance/legislation that states otherwise.

He also was not letting the property on a commercial basis and a subsequent claim for Letting Relief is most likely to be questioned and as a result fail. Regards Peter

msp and I have both justified our position on the basis of the legislation. Perhaps you would be kind enough to point us towards HMRC guidance/legislation that states otherwise.



Awaits next exciting update in Alice & Peter D in Wonderland Tolleys 2010.

[maths]

It seems the basic issue is whether, of course, s 223(4) is satisfied which appears to me to turn on whether the property has been wholly or partly “let”.

I suggest the following are irrelevant to satisfying s 223(4):

• the fact that no returns have been made concerning any profits/losses arising there-from;

• letting to connected persons; and

• whether the letting is at an amount which would have applied had the letting been at arms length.

However, my view is that despite the above the property has not been "let".

For a property to be “let” presumably requires some form of lease/tenancy or licence.

The former requires that, inter alia, the lessee has exclusive occupation of the property which I suspect is not the case (no doubt the son can occupy part of the property at will).

The arrangements appear not to constitute a contractual licence as I suspect there is no intention to create legal relations.

A bare licence is gratuitous.

The nature of the relationship seems to me to be more in the nature of a bare licence with the parents simply volunteering to make some contribution to the mortgage; in other words, the arrangements are nothing more than an informal relationship between parents and son.

This, I suspect, does not constitute the “letting” of a property.

The "mad hatter".

[Peter D]

PIM2200 casts some light but CG64710 Para 4 Bullet 3 knocks it on the head. As maths has stated "I suspect, does not constitute the “letting” of a property."
It was 'not' let and LR is not available. This was all locked out when they closed off Dependant Relatives CGT exemption, even if the paid you a £ a week LR was not available. Regards Peter

[mullet]

My reading of CG64710 para 4 bullet 3 is that a chargeable gain arises by reason of letting because that letting precludes occupation by the owner and thus denies PRR and leaves (part of) the gain unrelieved.

The same guidance says that "it is not necessary for the occupier to have a lease for accommodation to be let".

The phrase "let by him as residential accommodation" is not defined in TCGA so it takes its ordinary meaning. Residential accommodation does not create a problem, and to an extent was clarified by Owen v Elliott. The online Oxford dictionary (I can't be bothered to leave this seat) defines "let" as "allow someone to have the use of (a room or property) in return for payment".

Does that not work then? The parents had the use of the property, and the owner received money's worth by having the mortgage paid. That is payment.

[maths]

msp

The quote to which you refer is a little incomplete as HMRC go on to say that a licence would be sufficient for property to be let ie suggesting that “something’ is necessary and that “something” could be a licence (although does not need to be a lease) although no discussion as to the type of licence which would cause the property to be let occurs.

This is, I believe, in line with my earlier comments.

I agree that TCGA 1992 contains no definition of “let” and I agree that it is commonly understood to be the renting or leasing of property although consideration is not, I believe, a strictly necessary component eg a lease/tenancy does not need to be granted for consideration (although it would normally be so granted).

Because there is no lease or contractual licence the payment by the parents to the son are, I would argue, in essence gratuitous and primarily made because of the personal relationship of the parties rather than as consideration (ie rent) for the use of the property.

I am therefore not persuaded by your comments.

If I invite a friend to stay in my house for a month and, on arrival, he gives me £200 I do not believe I would have “let” my property to him. If questioned he might say that “it was just a contribution for having me”. Even if at the time of the invite he said “I think it’s fair if I give you £200” I would still suggest I was not letting my property to him.

Is this not basically what is happening?

[Incredulum]

I believe there is an oral AST, albeit at a price fixed by mortgage payments - which may or may not be below market value. Many .

Just visit landlordzone and post the following.

"Hi. I own a house, and my partner owns a flat. A few years ago I moved in with my partner in her flat and let an elderly relative move in to my house. The agreement was that they could live there and would just cover my costs, paying the bills and my mortgage payments. I now want to move back in and have asked them to leave tomorrow. However they are refusing to leave as they say that I have to go through the courts to evict them as they've got an oral AST. This isn't fair as I've let it to them cheaply as I feel sorry for them. Can I just go in and change the locks whilst they are out?"

References to the abolition of dependent relative relief are surely not relevant. This is 223(4) relief which is available under a wholly different set of circumstances, and requires only that the place be let.

It would be helpful to see some guidance supporting the following point of view which appears to fly in the face of the legislation.

This was all locked out when they closed off Dependant Relatives CGT exemption, even if the paid you a £ a week LR was not available.