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Where Taxpayers and Advisers Meet

CGT on sale of rental property for new home?

CazMax
Posts:5
Joined:Mon Jan 15, 2018 2:26 am
CGT on sale of rental property for new home?

Postby CazMax » Mon Jan 15, 2018 2:51 am

Ok, I'm in tears.. My parents bought a property in 1999 for my disabled son and I to rent after my marriage ended. They paid £30,000, and my son(now 23 and dependant due to learning difficulties)and I have planned a dream move to Wales/Scotland. The house is now worth £160,000,with which I planned to reimburse my parents £30,000 and use the rest for a new property. Our dreams were smashed with a friends "what about capital gains? " remark. I had NO idea this existed. In effect, we seem unable to move as the CGT would be about £35k plus the £30k to my parents and fees etc would leave about £90k, not enough for a new home. Is this accurate? Sorry to sound hysterical but I am genuinely devastated, I can't even tell my son. I'm hoping I've got this wrong but googling has just got me more confused. Any advice would be greatly appreciated :(

Peter D
Posts:10668
Joined:Wed Aug 06, 2008 3:37 pm

Re: CGT on sale of rental property for new home?

Postby Peter D » Mon Jan 15, 2018 1:58 pm

Who owns the house and have they ever lived in the property. Regards Peter

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

Re: CGT on sale of rental property for new home?

Postby AGoodman » Mon Jan 15, 2018 3:34 pm

Yes, I'm afraid CGT will be payable if your parents own the house but it is unlikely to be quite that much.

Start with the gross gain: £130,000
Deduct costs of acquisition and sale (legal/agents fees)

If they both own the property they can deduct £11,300 annual exemption each this year - a total of £22,600 (reducing the gain to £107,400 ignoring deductions).

Then the rates are 18% basic rate and 28% higher rate.

If you parents each had an income of £20,000, they would each pay 18% on £25,000 (basic rate) and 28% on £28,700 (higher rate), a grand total of £25k. If their income was lower the tax would be lower. If higher, then I'm afraid the tax would be higher.

You could reduce the tax further by up to £6,300 if your parents gave you half the property by 5 April 2018 (a one page declaration of trust would do it) and either gave you the other half after 5 April or sold it with you after 5 April. This would allow them to use two annual exemptions each and take the tax liability down by up to £19k. There is a small risk because they would be triggering the tax charge before the house was actually sold so if you did not sell by the end of the year, they would have to fund the tax themselves.

CazMax
Posts:5
Joined:Mon Jan 15, 2018 2:26 am

Re: CGT on sale of rental property for new home?

Postby CazMax » Mon Jan 15, 2018 4:20 pm

Who owns the house and have they ever lived in the property. Regards Peter
They own the house but have never lived here, thanks

CazMax
Posts:5
Joined:Mon Jan 15, 2018 2:26 am

Re: CGT on sale of rental property for new home?

Postby CazMax » Mon Jan 15, 2018 4:26 pm

Thanks so much, what you said about them giving me half is interesting. Is it not seen as CGT avoidance if you give part of the property away? That was our initial plan but I thought that wasn't allowed, the same as selling to me at a very low price?

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: CGT on sale of rental property for new home?

Postby bd6759 » Mon Jan 15, 2018 7:37 pm

That's a very insightfui comment from someone who hasn't heard about CGT.

Your parents can give away the property for as much or as little as they want. For CGT purposes, the gain will be calcuated using the market value, not the amount received. There is nothing to stop them giving you a fraction each year. Already suadm that will save £6300 each year. If they do it over 5 or 6 years, there wont be any tax to pay.

Onr further point. If you have been paying rent, your parents ought to have declared it as income.

CazMax
Posts:5
Joined:Mon Jan 15, 2018 2:26 am

Re: CGT on sale of rental property for new home?

Postby CazMax » Wed Jan 17, 2018 2:10 pm

Thanks for your reply. Gifting, or me buying at a reduced rate was the plan when I learned about CGT, then realised this was also subject to CGT. My insightful comment,and my knowledge of CGT all came about on the same day.My parents are retired and live in Portugal since 2001 ( re rent)

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: CGT on sale of rental property for new home?

Postby bd6759 » Wed Jan 17, 2018 5:12 pm

My parents are retired and live in Portugal since 2001 ( re rent)
If you pay rent to a person who lives abroad, it is your responsibility to deduct basic rate tax from the rent and pay it to HMRC.

Re CGT - If the owners are not UK resident, only the gain accruing from April 2015 is taxable.


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