Returning Gifted House to Parents

[Kayke]

I'd really appreciate some advice please.

Five years ago, we sold our home and purchased 2 much less expensive properties, both of which required renovating. Our intention was to live in the better of the two whilst renovating the second, then potentially move into the second and either rent or sell the first. The first cost £150k, the second £90k.

Being on a very meagre pension, we borrowed £40k from our daughter to subsidise both renovation works and living costs. To safeguard her money, we gifted the second property to her 4 years ago. Soon after gifting the property, she moved to work abroad.

Unforseen ill ealth had meant works have not progressed at the rate we'd anticipated. The first property (where we still live) has just been completed, the second (in her name) still has some considerable way to go.

Our daughter has now decided to settle in Switzerland and will not return to live in the U.K. so she wants her money back ASAP. The only way we can see to do that is to sell the property where we live (now worth about £275k) and finish and move to the second property. Our daughter is fine with that so wants to gift the second property back to us. It's currently not habitable but, once finished, should be worth an estimated £160k.

We stupidly didn't take professional advice on any of this and nor did we keep receipts for materials for either of the full renovations. Only now do we realise that there are CGT implications for our daughter (and possibly for ourselves too?). I'm so worried about it, I'm not sleeping at night (hence the time of this post!).

I did recently telephone a tax accountant, who repeatedly told me the problem was now our daughter's, not ours, but of course it is ours since the gifting of the 2nd property was simply to safeguard her not inconsiderable loan to us and provide her with some peace of mind.

We've got ourselves into a mess. Please, please help!

[pawncob]

There will be many viewpoints on this.
Firstly, it's not just CGT you are involved with. You bought both properties with the intention of renovating one and selling at a profit, so that's Income Tax not CGT.
You gifted the property to her at an undervalue, notwithstanding her £40k loan.
As the second property has not been "sold", it's probably best to ignore all CGT and Income Tax implications.
Sell property one (PPR), no tax implications. Repay daughter her £40k. Daughter transfers property two to you and you finish property two.
The only tax implications are for your daughter. Unless she can claim PPR relief she has a CGT liability on the increase in value from your gift to her to when she transfers it back to you. After taking account of the renovations this may not even be taxable, but you need professional valuations to determine this.

[Kayke]

Thank you.

We actually bought the first property first, simply to renovate and live in, then saw the second for sale a few months later and decided to buy without having any clear intention of what ultimately to do with it. We thought we'd just renovate it and possibly move there in the future, or rent it out, or sell one of the two.

It wasn't gifted to our daughter at an undervalue but at the price paid (the conveyancer we used to buy it did the transfer). We kept no materials receipts as didn't think of it as a business venture.

If our daughter moved back to the UK and lived in it for a while, would CGT still be applicable?

We haven't thought this through or realised professional advice was necessary. How I wish we'd kept all our equity eggs in one basket!