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Where Taxpayers and Advisers Meet

CGT - Inherited Property - More than FMV Calculation

wafer123
Posts: 1
Joined: Sat Apr 15, 2017 3:51 pm

CGT - Inherited Property - More than FMV Calculation

Postby wafer123 » Sat Apr 15, 2017 3:58 pm

Dear Experts

I am hopeful you can assist with my tax queries related to a long-standing property dispute with a sibling.

2004 - a property was purchased by my father, myself and my sibling, the title deeds being held in joint names (joint tenants). Purchase price of property was £232k.
2007 – my father passed away and the property title deeds were transferred into the names of my sibling and I. As sibling and I had already been on the deeds, the property was not referenced in the will. The mortgage was cleared by my father’s life insurance and my sibling and I received no other inheritance.
2016 – house was valued at £400k.

I am trying to appraise the below scenarios. I currently have a mortgage on my own primary residence and I own no other properties except for that owned jointly with my sibling.

Option 1:
I sell my primary residence, buy out my sibling and move into the property.
If fair market value is £400k, I pay sibling 50% - £200k.
I’m aware that I will incur SDLT on the £200k and CGT when I eventually sell the property.
Assuming I spend £50k repairing the property and sell it for £500k, what would the CGT calculation be based on?

Option 2:
As per the above, except I pay sibling more than FMV for their 50% - £300k instead of £200k.
I’ve essentially bought 75% of the property off them, when they only own 50%.
Is this possible and what would the implications be?
If it’s not possible, are there tax implications of me “gifting” £100k to my sibling, separate to the sale/purchase of the property?

Many thanks!

AnthonyR
Posts: 277
Joined: Wed Feb 08, 2017 2:33 pm

Re: CGT - Inherited Property - More than FMV Calculation

Postby AnthonyR » Mon Apr 17, 2017 6:39 pm

The answer to your question depends on how long you occupy the property for as your main residence.

The period when it is your main residence is exempt (including the last 18 months of ownership). If you've let it out in the meantime you will also get lettings relief, which exempts up to £40,000.

In respect of option 2, the better option (unless your sibling is living there) is probably to simply gift a further £100,000 as selling their share for £300,000 will just increase their CGT liability. Assuming you survive 7 years there is no tax implications on a cash gift.

In respect of your position, it's quite complex. Your CGT base cost is currently 1/3 x £232,000, plus 1/6 x value at 2007 (value you inherited from your father). Lets say 2007 value was £250,000. This means your current base cost for your 50% share is aprox £120,000. If you acquire the other 50% from your sibling for £200,000 then you have an overall base cost of £320,000. If you then spend £50,000 on it this will increase your base cost to £370,000 (excluding legals/SDLT/etc). As a result there is an exposure to CGT if you sell it for more than this value.

You would then need to calculate (on a sale) the amount of main residence relief you are entitled to plus any lettings relief if it has ever been let out, deduct your annual exemption and any gain thereafter will be subject to CGT at 28%.

If you are married, you could also consider gifting a share to your spouse to double the available annual exemption.
Anthony Rogers LLB CTA TEP
Fusion Partners LLP
anthony@fusionpartners.co.uk

Ian McTernan CTA
Posts: 1232
Joined: Wed Aug 06, 2008 3:02 pm
Location: Bedford
Contact:

Re: CGT - Inherited Property - More than FMV Calculation

Postby Ian McTernan CTA » Tue Apr 18, 2017 11:21 pm

Under option 1, you might also have an issue with income tax rather than CGT on the gain as the intention seems to buy out your sibling, develop the property and then sell it. Proving PPR under those circumstances might prove difficult as there was never an intention to reside permanently. HMRC are getting hotter on this issue and taking on a lot more cases looking at PPR claims and especially partial PPR claims.

Siblings are connected persons so market value is used in CGT calculations. Selling for 300k, 200k, 1k, makes no difference to their CGT calculation as market value is used.
McTernan Associates Ltd
Chartered Tax Advisers
Bedford
Email through link on website:
http://www.imcternan.com


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