Flat for Mum

[larryD]

5 years ago my Fiancee and I purchased a flat for my elderly Mum, now we've found a more suitable home much closer to us and we're thinking of moving her. (the new home is slightly more expensive.)

As there's a lot of profit in the flat, we're concerned that this will be subject to CGT and paying it will limit our ability to pay the second mortgage.

Is there a way of completing the conveyance without losing everything?

regards

Larry

[accountant@uktaxshop]

Larry,

At the moment, assuming only your mother has lived in the flat, you and your fiancée will be liable to the CGT, calculated at the difference between the purchase and sales price, less some minor relief’s and your personal allowances.

Depending on the level of profit there may or may be no liability. If you would like me to estimate the liability for your, please let me know.

If there is a substantial gain, there is a route available for you - a gift into a discretionary trust in your mothers favour. This would utilise your mothers main residence relief. This may not be suitable if your mother has a large estate (assets over £255k) and is of ill health, as it could result in a large IHT bill, or you need to move quickly. However correctly done in the right circumstances it could save you the CGT.

If you would like to explore this further, please let me know. I have a good contact who can set this sort of scheme up for you.

Regards

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436

[larryD]

James,

during the 5.5 years of ownership, the flat was used for 6 months as her PPR (verifiable).

excluding the periods of rental for the moment, here's the figures:

Flat purchase price - £59,950 (£9,950 deposit, £50,000 Mortgage)outstanding mortgage £45,000

likely Flat sale price - 143,000

her expected gross earnings for 2003-04 are 11.5k (taxed at the lower rate).

should we decide to proceed with this, please advise possible CTG due

many thanks

Larry

[accountant@uktaxshop]

Larry,

as we discussed on the 'phone, the PPR makes a big difference. This drops the CGT from approx 83k (ignoring taper relief) to around £30k.

As the property is rented the 30k is cancelled out by lettings relief, bringing the liabilty to zero.

However as we discussed you need to take steps to declare the rental income or you will be in no position to claim this relief, and of course the sale of the property needs to be declared.

Regards

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436

[larryD]

James,

thanks for this,

I plan to assemble all the info regarding rental income and revert to you re: filing past tax returns as discussed.

In the meantime, I need to find out the worse case scenario so as we can make a decision on whether to proceed with the conveyance.

Lastly,

1) is the initial deposit deductable from the tax calculation and is 30k the taxable amount or the tax payable.

please advise

Larry D

[Nigel Lord]

Larry

There is a possible solution to your dilemma which may work if you can buy some time. It would eliminate all of the potential CGT tax exposure. This involves the use of a discretionary trust arrangement.

If you would like me to advise you whether it is suitable, please copy me in on all of the information that you are providing to James.

Nigel Lord
Lord Associates
Taxation & Business Consultants
Caxton House
Old Station Road
Loughton
Essex, IG10 4PE
020 8418 9101 & 07769 931852
mail@lordassociates.co.uk

[accountant@uktaxshop]

Larry,

I think it would be helpful if you gave me a call again so we can go through the points you raise above - the email you sent yesterday has unfortunately not arrived.

Regards

James Smith
Chartered Accountant
www.uktaxshop.co.uk
01284 764436