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Where Taxpayers and Advisers Meet

How to value house for CGT if sell below value

Djh5757
Posts:3
Joined:Sun Mar 12, 2017 6:47 pm
How to value house for CGT if sell below value

Postby Djh5757 » Sun Mar 12, 2017 7:40 pm

Hi, grateful of advice please.

I live in my own mortgaged property. 3 years ago my partner was living in rented accommodation. He wanted to purchase a small property to rent out but as recently self employed couldn't get decent mortgage so we agreed that the house would be purchased in my name. Purchased for £107000 with £40000 deposit. Shortly after purchase his circumstances changed and he ended up moving into the house himself therefore the house was never rented out and he just pays the mortgage each month. I hv never declared anything to hmrc as I never received anything in 'rent'.

I hv now bought my own btl and so we want to sort out the properties and get his property back in his name as it looks like he will be living there for the foreseeable future.

I understand if I 'sell' the property back to him I will incur CGT. The property is worth around £130000 in realistic terms

My questions:

1. I understand I could sell it back to him for whatever figure I choose - is that correct? E.g. Ideally the £60000 which is basically the mortgage he has on it
2. When he applies for a mortgage will they think it odd he is only paying £60k? Will they care?
2. With regards the CGT, who values the property to establish what needs to be paid? Can I just get that done myself?
3. Do I then need to send in the valuations with my tax return?
4. With the income from my own property this year I am likely to be very close to 40% tax for 2017-2018. Adding in the CGT does this mean it will have a big impact on the rest of my earnings for 2017-18?

I thought it would be worthwhile getting the property back into his name but just want to make sure it's not going to cost huge amount but I'm thinking the longer we leave it and property goes up the more it will cost us in the long run.

Very grateful for your advice.

AGoodman
Posts:1738
Joined:Fri May 16, 2014 3:47 pm

Re: How to value house for CGT if sell below value

Postby AGoodman » Mon Mar 13, 2017 4:57 pm

The very first thing you need to consider is - who beneficially owns the BTL property? Obviously it is in your name but you don't say who provided the deposit and you have not declared the fact he has paid the mortgage (which would usually leave you with net income if a repayment mortgage).

If he provided the deposit and paid the mortgage and your only role was to be on the title and mortgage then arguably he was the beneficial owner and you were his nominee but the reality depends on what you agreed when you bought the property. This is slightly complicated as you presumably told the bank you were the owner. If you were just a nominee then you should look to record this fact in writing. It would be helpful because you would just be transferring the title to the property back to the beneficial (true) owner and there is no disposal for CGT. If it was his only property then SDLT would not be an issue either way. He would just mortgage the property to allow you to repay the existing mortgage.

If the property was actually yours (query the source of the deposit) then you will have to pay CGT on the actual gain (purchase price vs market value now) because transfers at an undervalue are subject to CGT as if sold at market value. You value the property yourself (taking advice as appropriate) and declare it on your tax return at the end of the year. Do not send in a valuation. Gains are the top slice of income so the balance after your annual exempt amount would be subject to 18% (up to the higher rate threshold) and 28% thereafter. It will not affect the rate of income tax on your income.

Also, bear in mind that if the property was yours and he was paying the mortgage then arguably you have received what appears to be rent. After deduction of interest, the balance would be income.

AG

Djh5757
Posts:3
Joined:Sun Mar 12, 2017 6:47 pm

Re: How to value house for CGT if sell below value

Postby Djh5757 » Tue Mar 14, 2017 11:09 pm

Thank you for your helpful response. Yes, the deposit was his. It was purely to help him out at the time as he couldn't get the mortgage due to short self employment time. I think if I remember He has only paid the interest on the mortgage each month and then about £5000 off the capital. Does that £5000 count as income for me? as it's not a rental as such just him living in his house paying what is effectively his mortgage but all in my name. We've never logged expenses etc so I'm sure there is quite a bit of expenses that we could offset against it should there be any tax queries. Re the nominee thing, do we just go to a solicitor to get this drawn up and actioned do you think? Thanks again

Djh5757
Posts:3
Joined:Sun Mar 12, 2017 6:47 pm

Re: How to value house for CGT if sell below value

Postby Djh5757 » Fri Mar 17, 2017 6:41 pm

Any advice re my last comment appreciated. Thank you


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