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Where Taxpayers and Advisers Meet

Help - complicated 2nd home situation

Juliayarrow@me.com
Posts: 4
Joined: Fri Jan 04, 2019 1:15 am

Help - complicated 2nd home situation

Postby Juliayarrow@me.com » Fri Jan 04, 2019 1:37 am

I am considering selling up my main residence and my 2nd property which my mother lives in and buying one big property for my family and my mum to live in together but I need to consider the impact of the CGT I will owe. I can’t work it out and the figure I’m coming up with is scary.

In July 2003 I bought house A with mum for £24k, property was valued at £60k, but we got a right to buy council discount on it. I paid all of the mortgage costs. My now husband also lived with us but did not own any part of it.

In April 2007 I moved out of House A and bought house B with H. I didn’t declare either of them as my main residence. Mum continued living in house A and didn’t pay anything towards the mortgage.

In January 2016 due to Mums age, she came off the mortgage and the ownership of the house, and I became 100% owner of House A. She still didn’t and still doesn’t contribute to the mortgage costs. At the time, House A was valued at £128k by the bank sorting the mortgage. I did not give Mum any cash for her transferring the the property solely in my name. This is because of the discount she gained for us and because she doesn’t pay to live there. She could be considered a dependent? I don’t know how that affects things.

I estimate that House A is now worth around £170k.

I work part time and earn approx £24k a year. So I know part of the gain will be taxed at 18% and part of it will be taxed at 28%.

How much CGT am I going to be liable for? I know I will be eligible for PPR for the time I lived there and the last few months of ownership, but I don’t know if owning 50% and then 100% has an impact on how it is worked out. I don’t know if I’m eligible for renting relief because mum never actually gave me any rent.

Also, is it possible to gift 50% of House A to my husband just before sale so that we can use his CGT allowance to offset £24k of the liability rather than just my £12k?

Is there anything else I haven’t considered?

Thank you for reading :)

AGoodman
Posts: 772
Joined: Fri May 16, 2014 3:47 pm

Re: Help - complicated 2nd home situation

Postby AGoodman » Fri Jan 04, 2019 1:49 pm

The main thing that jumps out is that when your mother gave you 50% in 2016, this would have been a CGT disposal by her (covered by PPR) and a deemed sale for SDLT.

The first point is a useful one - your deemed acquisition value of that half would be £64k - which added to the original £12k (for your half) is £76k. That reduces your total gain to about £95k

The SDLT point may not be a problem. You would have been deemed to have paid her a sum equivalent to one half of the outstanding mortgage at the time. Presumably whoever did the conveyancing at the time would have addressed this - it may well have been under the threshold.

It looks extremely difficult to apply lettings relief as this is taken to mean commercial lettings and, in addition, you have not really let the property. Your mother was living there as a result of her half share.

Yes, you can claim PPR for the period you were in occupation and should be able to transfer a half share to your husband to use his exemption. This will probably have to be by declaration of trust as otherwise the bank will have to be involved.

With approx. 25% PPR and a transfer of half to your husband, you are looking at a remaining gain of about £23.5k for you and £35.5k for him.

It may well be better to transfer him a smaller share than 50% to use his exemption and the basic rate (if he is currently under the higher rate threshold) as you can use PPR and he cannot.

Juliayarrow@me.com
Posts: 4
Joined: Fri Jan 04, 2019 1:15 am

Re: Help - complicated 2nd home situation

Postby Juliayarrow@me.com » Fri Jan 04, 2019 2:46 pm

Hello, thank you for taking the time to reply.

Would you mind clarifying what you mean by SDLT?

The figures you gave for the gain are just what we would be taxed on, is that correct? I think I need to play about with the figures and see what reduces our liability the most. The figures you’ve come up with are much lower than expected though and I think it’s because of the 2016 transfer. So will the value at that point be allowed even though I didn’t pay mum anything for it?

Juliayarrow@me.com
Posts: 4
Joined: Fri Jan 04, 2019 1:15 am

Re: Help - complicated 2nd home situation

Postby Juliayarrow@me.com » Fri Jan 04, 2019 2:52 pm

Also, how is H’s gain only 35.5k when I’ve transferred 50%? What are the calculations behind that?

Juliayarrow@me.com
Posts: 4
Joined: Fri Jan 04, 2019 1:15 am

Re: Help - complicated 2nd home situation

Postby Juliayarrow@me.com » Sat Jan 05, 2019 12:06 am

Hello, thank you for taking the time to reply.

The figures you gave for the gain are just what we would be taxed on, is that correct? I think I need to play about with the figures and see what reduces our liability the most. The figures you’ve come up with are much lower than expected though and I think it’s because of the 2016 transfer. So will the value at that point be allowed even though I didn’t pay mum anything for it?

AGoodman
Posts: 772
Joined: Fri May 16, 2014 3:47 pm

Re: Help - complicated 2nd home situation

Postby AGoodman » Mon Jan 07, 2019 12:24 pm

SDLT = stamp duty land tax = stamp duty

Yes, figures I've given are the gain, not the tax on the gain.

H receives half of property (85k) with half of your acquisition value (38k). His gain on sale is 85-38 = 47k. Annual exemption is £11,700 so his remaining taxable gain is £35,300.

Gift by your mother is a deemed market value disposal so you receive it at market value. Your mother would have had to pay CGT if not for PPR.


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