CGT on shared flat later changed to sole ownership

[Mary1]

Dear All,

I have another scenario for you which I would appreciate your opinion on:

Back in 2001 I bought a flat with my cousin (50/50) for buy to let purposes. The cost of purchase was £112,500 and we were joint tenants of the leasehold, later changed to tenants in common in 2007 after she had children.

In 2012 we agreed that I would buy my cousin out. To find out how much I would need to pay her we got the flat re-valued at £172,500. After calculating how much I would need to buy her out (her remaining equity calculated at £72,250 which I would have to pay her and take over the remaining mortgage) I then became sole owner and had a conveyancing company organise the change of title, etc. costing £334.

Now, here’s the rub. I want to sell and have the possibility of a private buyer offering £200,000. How is CGT calculated on such a seemingly complicated scenario?

My initial contribution was £56,250(50/50 split) plus legal expenses. To buy her out I had to pay another £72,250 which makes the total cost to me of buying the flat £128,500 plus legal expenses but there were 11 years in between.

How would the CGT be calculated in this scenario? Ironically, after buying my cousin out no capital gains were charged to her!

[bd6759]

Your caluclation is correct.

£200,000 less your costs. Thus far they are £128,000 plus legal and selling costs.

[someone]

How would the CGT be calculated in this scenario? Ironically, after buying my cousin out no capital gains were charged to her!

Your cousin should possibly have paid CGT. At first glance she made 16K less the 10600 allowance in 2012 so a 6K gain.

It seems unlikely that there was 6K of legal expenses but you may have had some capital expenses that couldn't be claimed against the rent (you should double check because you'll have your share too to claim if so)

Capital gains aren't charged to your cousin, she has to declare them (as do you) - you might want to double check on the reporting requirements and payment schedule too as I think it has changed since your cousin sold.

If your cousin did make a mistake and omitted to report a taxable gain then it is her decision to let HMRC know about the mistake - whether HMRC pick up on the earlier disposal when you submit your CGT return is anybody's guess but a voluntary disclosure by your cousin is likely to be just tax plus interest while if HMRC investigate it's likely to involve penalties too (but it's more than 6 years ago so that complicates things too as to whether HMRC can recover any underpaid tax)