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Where Taxpayers and Advisers Meet

Legal ways to reduce CGT on rental property?

littly_kittly
Posts:3
Joined:Wed Jan 11, 2017 9:26 am
Legal ways to reduce CGT on rental property?

Postby littly_kittly » Sat Aug 06, 2022 6:23 pm

My uncle bought a property for his daughter to live in while she was at university. She lived there for roughly 10 years but then moved back home at the start of the pandemic. As she no longer needed the property, my uncle decided to rent it out.

He is now thinking about selling it as being a landlord isn't for him. However, he will be paying quite a hefty amount in capital gains tax (even after offsetting the costs incurred by having a tenant).

Are there any legal ways to reduce it? He obviously wants to pay what's legally due, but the government sometimes has legal avenues for legitimately reducing taxing.

He's spoken to an tax expert who advised to set up a trust deed in the name of his son and daughter so they have beneficial ownership. Then when the property is sold they can use their personal allowance to reduce the tax.

Is this legal? I've searched around but not really found a lot that confirms it. From my rudimentary understanding of what I've read online, if he set up a trust deed now, wouldn't he have to transfer the property into the trust and so trigger the CGT at that stage.

I just want to make sure my uncle isn't being taken advantage of with advice that will come back to bite him later on!

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Legal ways to reduce CGT on rental property?

Postby bd6759 » Mon Aug 08, 2022 12:58 pm

CGT is paid on disposals. Giving the house to his children is the same as selling to some third party. It is a disposal and he will be liable to CGT.

As always, tax planning needs long before the time of disposal. By then it is too late.

littly_kittly
Posts:3
Joined:Wed Jan 11, 2017 9:26 am

Re: Legal ways to reduce CGT on rental property?

Postby littly_kittly » Tue Aug 30, 2022 6:32 pm

CGT is paid on disposals. Giving the house to his children is the same as selling to some third party. It is a disposal and he will be liable to CGT.

As always, tax planning needs long before the time of disposal. By then it is too late.
Thanks!

What if my uncle creates a trust between him and his children. I would have thought doing this would be the same as giving it to his children: When he creates a trust and puts the property in, he will have to pay CGT. But the tax expert is adamant that is not the case. I suspect the tax expert is just saying this so he can make a fee from setting up the trust. But I'd love a second opinion before I start throwing allegations.

Thanks in advance for any help!

bd6759
Posts:4262
Joined:Sat Feb 01, 2014 3:26 pm

Re: Legal ways to reduce CGT on rental property?

Postby bd6759 » Wed Aug 31, 2022 12:33 am

If he is going to pay a “hefty” amount of tax, he must also be pocketing a very hefty amount. Tax is 28% of the gain. He will pocket a minimum 72%

He has a choice. Pay the tax or pay a tax advisor to reduce the tax. He pays less tax, but incurs more expense. Either way he still pockets a very hefty gain, and pays a hefty sum in tax and/or fees.

I can’t comment on the scheme. I don’t know what he intends to do, but passing property into a trust is normally a disposal and CGT trigger.


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