CGT on home owned 50:50 with dad

[david_m]

Hi

Hope somebody can help me with this. In 2002 I bought a house with my dad (for my mum and dad to live in). Cost was £170k, £85k each. We've added a small extension to the house (cost £10k). The house is now worth say £250k, so my share is £125k. I do not own any other house (my wife and I have bought our first house in 2014 but it is in wife's name).

If we now sell the house my parents live in for £250k (they want to downsize in a few years), what is my CGT liability? Is it simply £125-85k =£40k, then subtract £11k (CGT allowance) and tax remaining £29k at 28%? Can I reduce the gain to £35k by offsetting half of the £10k extension cost?

I'm sort of resigned to paying the CGT bill of about £8k. However, I just want to check whether is it possible to claim any primary residence exemptions? I rented a flat throughout this period in another town. However, bills/correspondence were typically sent to the rented flat not the house (with the exception of my HMRC SA and some pension statements!).

Would gifting half of the house to my mum improve the situation in a few years time?

Thanks for your time

[section 44]

Sounds reasonable

Giving your mum your share of the house wouldn't help your CGT position.

[Brian Clarke]

First the good news: you can claim for the cost of the extension - it's improvement expenditure.

Now the bad news: you can't claim any private residence exemption because, on the facts you give, it was never a residence of yours.

Would gifting half of the house to my mum improve the situation in a few years time?

There's a general principle of Inheritance Tax planning that it's a bad idea to pass property to an older generation - it should only be passed to a younger generation. You would have to pay CGT on the transfer (calculated on market value), and it might result in a bigger IHT bill when your parents die. They could mitigate the IHT bill by giving you money after they downsize; then, so long as they live another 7 years, there's no IHT on what they gave you. But it needs long term planning.

[david_m]

Thanks for the replies.

I am only thinking about gifting the house to my mum since my mum and dad are well below the IHT limit, while I am well above. My idea was that I gift it to my mum and then my mum and dad leave it to my children (I am also only child so no siblings).