Bought flat for student son to use to avoid paying high rents - now want to sell the flat to son but retain a second charge on the property.

[taxdizzy]

We remortgaged our house in order to purchase a flat in 1998. Our son used the flat whilst at university to avoid high rent for his accommodation; he now has a job and he has bought the flat, but his salary will not allow for a full mortgage so we have retained a second charge on the property for the same amount as his own mortgage. My question is, do I have to pay the CGT on the full amount of the sale now or is this classed as a partial sale as I haven't received all the money yet? Can I defer the CGT until the second charge is repaid?

The cost of the flat in 1998 was £90,000, We have sold it to our son slightly below market value at £145,000, no estate agents fees etc. We have improved the property with new kitchen and double glazing (£10,000) so we think there would be CGT on
£45,000 less my husband's and my CGT allowance for this year. The second charge of £75,000 will not be repaid for the time being but has been legally draw up by our solicitor.

[Huw Williams]

My first impression is that you will have to pay full CGT.

If you think about the situation from the other side - when you buy a house on a mortgage, you do not pay the full price over (as you have borrowed some of it), but you do include the full price in any later tax computation.

So if you sell but do not receive the full price, the same situation will apply - you will get taxed on the full proceeds.

There might have been alternatives to an outright sale which could have been written into the legal documents, so it might be worth having a look at these, although your description of them is not hopeful.

Huw Williams
enquiries@huwwilliams.co.uk