CGT on Property sold to Family member below market value

[glimmeryhope]

Hi All,

Hoping someone can help with some advice on our SDLT / CGT query.

My wife and I bought a house together in 2017 and had to incur the additional 3% SDLT on the purchase (c.£22k) as she already owned a flat (which was previously our main residence) to help the with moving and refurbishment of the new house. It was since rented out for a period.

We have been looking to sell the flat since Summer 2019, but with Brexit and now Covid, this has proved impossible by our deadline on 30 May 2020. Flat is worth approx £360k, having reduced from earlier list price of £400k.

One option we have been considering is whether to "sell" the property and transfer ownership title to Mother in Law (MIL) who has some cash on hand but wanted to facilitate this at below market value - say £200k. Reason being that we need to clear £185k on a BTL mortgage. Understand that the process would incur stamp duty for MIL and also conveyancing fees, but net net we think we can "Recover" about £12k on the original £22k SDTL paid for our main home.

I have a few queries:

1) I understand HMRC will probably want to assess CGT on the sale of the property at market value. How do they assign a market value, given we dont have 3rd party buyers? We did have a previous verbal offer via Estate Agent, but due to COVID this was retracted.
2) Flat Original purchase price was c.£260 including costs. Given it was our main residence since 2011 - would it be better if it was assessed at assumed market value of £360k, as potential CGT would be low and may not exceed the annual allowance? We don't plan to have any other asset sales that may have CGT implications.
3) MIL is a foreign national and resident overseas. She has one other property interest in the UK. The intention is not for her to hold this long term. If she bought for £200k, when she comes to sell, would this be assessed for CGT purposes from the £200k purchase price or the "assumed market value" of £360k?
4) I read somewhere that she may have to "deem" this property as her primary residence when she is in the UK to potentially avoid the CGT bill?

Many thanks in advance.

[AGoodman]

1. By assessing what a generic third party buyer would pay. By comparisons to other sales. The Covid situation makes it more difficult as arguably the price that could be obtained is currently much lower but it's a pretty unique situation (banks still lending a bit but conveyancing mostly ceased).
2. At £360k, the gain would be £100k. PPR would cover about 7/10 years (including the final "free" 9 months) = £70k. Letting relief of £30k if let for 3 years. So yes, CGT is unlikely.
3. Her acquisition price would be the deemed mkt value (the £360k in your example).
4. She couldn't deem it her primary residence because (a) it would have to be her actual residence (not just a flat she owned) and (b) should would have to be UK tax resident or live in that flat for at least 90 days during the year for it to count for PPR (otherwise it would be a "non-qualifying tax year").

[glimmeryhope]

Thanks for the quick reply. Thats really useful. Just a few follow on points please:

Re: 2 - How do we notify HMRC of this transaction at "Deemed market value"? Is there anything special we need to do or form to fill at the point of sale through the solicitors or is it just to be done as part of tax return? Not sure about the mechanics of this.

Re: 4 - Since MIL is a foreign national, how would CGT or Income tax work for her? Will she just file a tax return like normal UK residents? I am assuming she may need to rent out the flat for a least a year or 2 to get past this Covid situation, and then look to sell to get a "normalised" market price. Will she get the normal "tax-free" allowances like UK residents? She has no other UK income, and the foreign country does not have a regime to tax income from abroad.

Many thanks