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Where Taxpayers and Advisers Meet

Council House bought at a discounted price

simpsonite
Posts:109
Joined:Wed Jun 24, 2009 11:58 am
Council House bought at a discounted price

Postby simpsonite » Thu Sep 03, 2009 2:35 pm

Hi all,

Council house bought at a discounted price of £14,750. The MV was £31,000.

For CGT purposes is there any way i could use the higher MV figure citing that the discounted element of £16,250 was based on rental payments made by the sitting tenant during her tenancy and effectively a capital cointribution?

Thoughts appreciated.

Simpsonite

pawncob
Posts:5090
Joined:Wed Aug 06, 2008 4:06 pm
Location:West Sussex

Re: Council House bought at a discounted price

Postby pawncob » Thu Sep 03, 2009 2:36 pm

The discount was given under statutory provisions, so you'll have to use the actual purchase price.
With a pinch of salt take what I say, but don't exceed your RDA

simpsonite
Posts:109
Joined:Wed Jun 24, 2009 11:58 am

Re: Council House bought at a discounted price

Postby simpsonite » Thu Sep 03, 2009 2:38 pm

Thanks for that pawncob,

simpsonite

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

Re: Council House bought at a discounted price

Postby Peter D » Thu Sep 03, 2009 3:02 pm

I'm afraid not, it is the actual purchase price that forms the base price for the CGT calculation. Regards Peter

twickersmx
Posts:4
Joined:Wed Aug 06, 2008 3:38 pm

Re: Council House bought at a discounted price

Postby twickersmx » Wed Sep 16, 2009 9:55 pm

I'm afraid not, it is the actual purchase price that forms the base price for the CGT calculation. Regards Peter
Peter could you possibly comment on the method employed in-post 1988- purchasing council house with funds supplied by children(which seems to be indicated in this question) in cases personally viewed these are done under a trust deed with funds supplier(s) as beneficiaries
and council tenant(purchaser) a tenant for life rent free.
My view of these transactions is that Trust is "interest in possession" trust, with no CGT or IHT on death of life tenant.

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

Re: Council House bought at a discounted price

Postby Peter D » Thu Sep 17, 2009 10:14 am

There was no indication that a trust was involved here but a Trust could be used however that does not remove the CGT liability as that would be deferred by the trust and eventually the beneficaries would have to pay it based on the actual consideration and the sale value. When HMRC shut the dor on dependant relatives PPR exemption they also reviewed the Trust rules to close the loop hole. Do you have a particular scenario, in some cases depending on the facts A Teclartion of Trust, beneficail Ownership statement and an IIP can solve certain issues. Regards Peter

maths
Posts:8507
Joined:Wed Aug 06, 2008 3:25 pm

Re: Council House bought at a discounted price

Postby maths » Thu Sep 17, 2009 7:53 pm

Twickersmx

Some thoughts.

Is it the case that under these right to buy schemes the right to buy is that of the tenant and no-one else?

Assuming this to be so it may be that the children of the tenant finance the purchase (eg lend tenant the monies) but nevertheless the purchaser is still the tenant (no trust).

I would assume that under the schemes it would not be permitted for the tenant to buy the house as nominee for the children funding the purchase (no trust).

The tenant could effect the purchase using monies from the children and once purchased the tenant could agree to hold the house in trust for the children who funded the purchase subject to continuing to reside there until death. In this case if the trust was set up pre 22nd March 2006 the tenant would have a qualifying interest in possession. The house would from part of the tenant's estate on death for IHT and a CGT tax free uplift would apply on death.

A trust set up post 22nd March 2006 would not give rise to a qualifying interest in possession and on the tenant's death no part of the house would in principle be included as part of the estate; however, the transfer into trust would be a gift with reservation and so in fact the house would be included as part of the tenant's estate on death. No tax free CGT uplift would apply.

twickersmx
Posts:4
Joined:Wed Aug 06, 2008 3:38 pm

Re: Council House bought at a discounted price

Postby twickersmx » Wed Sep 23, 2009 2:59 am

Thanks Peter for quick reply/
I do not have deed in front of me but basically it was set out
1- x purchase property from council -june 1996
2 for £ , funds supplied by daughter and husband (with money borrowed on their previously purchased council house in same road)
3. x would on transfer of property from council register same in x name.
4. would hold such property in trust for beneficiaries (fund suppliers daughter and husband)
5. For 3 years and then at beneficiaries request transfer property to beneficiaries
6. beneficiaries to be responsible for building insurance and expense of maintaining inside and outside repairs.
7. x to act as trustee and live rent free for live .

The trust and the transfer from council both dated same day ??

I can see no way this can be other than purchase by parent for on behalf of children.
On death of x jan 2001. no IHT or CGT ?
On sale by benificiaries in 2003 who moved into property in 2002- 12 months after x death .
CGT would be based on ownership from date of Trust ? 1996
With x right to live 'rent free' be classified as "let property" to date of death 2001,and subject to letting relief ?
with last 3 years exempt and taper relief.

If not as above, then right to buy was a scam. ?? or maybe my fellings reflect the fact I always thought the policy flawed.

twickersmx
Posts:4
Joined:Wed Aug 06, 2008 3:38 pm

Re: Council House bought at a discounted price

Postby twickersmx » Wed Sep 23, 2009 10:34 am

Peter / Maths..
I should add, with apology for not doing so earlier..
Right to buy sole right of X -the actual buyer and the council tenant...
In case referred to ..
The obligation under the Trust operate on the " Transfer dated dd/mm/yy from council"
The registration of title by X was subject to 2 charges..
1- by council ..with right to reclaim discount if disposed within 3 years..-this would be removed after 3 years..
2- charge in favour of benificiaries..both named on Land registry .. which could not be removed except by beneficiaries.
3. both of the above indicate the purchaser never actually owned the property in their own right ???..otherwise initial registration would
only be subject to first charge by council. as the funds used were not borrowed ? and the 2nd charge would
a-not be allowed without council notification ?? (my interpretation of this may be way off..background not legal)
b-benificiaries -not being lenders- would have no right to register interest as Trustee would be title holder ?. for first 3 years
and
4 the purchaser X never insured the property ?. The beneficiaries did insure the property, and could only do so with legal or financial interest ?

I should also advise my colleagues agree with your views, I am just curious to see others views. I cannot see how local councils would accept these land registry charges by beneficiaries, if they were aware of them ,without some questions.
As to use of Trust, it seems common place where funds are provided by others. I have seen same type of documents under different council areas and legal offices.
Thanks for your time, appreciated.


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