Capital Gains Help On Transferring A Property

wajj2004

Hi, in 1998 I was planning to go abroad for an indefinite period of time, so I asked my brother to purchase a property on my behalf, I raised the neccessary funds and used the majority of my saving to make the purchase, my brother signed for the house and had his name on the deeds. In 2003 he transferred the property over into my name.

A few months ago the taxman decided he wanted capital gains tax for the period the property was in my brothers name, is there anyway I can get out of this, he is looking at a mega tax bill and your truly will be footing it.

The property was purchased from entirely my money which I can show from my old bank statements and then transferred over into my brothers name so that he could make the purchase, he lived in it for a number of years as his home and transfered it over to my name when I moved in.

Also my brother made a huge loss in shares can this be offset against any of the property capital gains?


please please any help would be appreciated

Pennywise

Since taxman obviously regards the property as being your brothers for that earlier time period, hence the CGT bill, why hasn't your brother claimed principal private residence relief on the grounds it was his home. If he did so, it would substantially reduce the CGT. And yes, if he had capital losses, he could set them against the CGT bill - but since it is really your "gain", it would be detrimental to him to do so as he'd lose the losses for any future gains of his own.

All that said, you should be able to demonstrate you were the beneficial owner throughout, hence no CGT at all. Of course, this means that the CGT when you come to sell it will be higher due to all those years when it wasn't your home but was instead your brothers. It may be better to claim it was his home to get some PPR relief instead.

You need to see a tax expert to do the number crunching as to which way is best to proceed and then you have someone knowledgeable to argue your case.

jimmo

I rather agree with Pennywise but find myself struggling with a moral dilemma.
HMRC obviously know that the legal ownership of the property has been transferred from your brother to you but that is probably they know. It may be splitting hairs but there is no way that they have formed an opinion that the house was your brother’s. All they know is that the transfer of legal ownership has happened and that is not reflected in his Tax Returns if he makes them.
The way in which you present the facts here strongly indicates that you are the beneficial owner of the property and your brother bought the house (with your money) as your bare trustee.
When the legal ownership of the property was transferred to you that was simply a mechanical process and your brother has not made a disposal for Capital Gains Tax purposes and no tax can be charged.
That, I believe is the correct legal position that you bought the house and it has always been yours from the date of purchase.
However, as there is probably nothing in writing you could present the case that you loaned the money to your brother, he bought the house for himself and then transferred the house to you in repayment of the loan.
Then your brother will have realised a Capital Gain when he transferred the house to you but if he actually occupied the house as his main residence for most of the period of his ownership his gain could well be exempt from CGT.
Perhaps because I used to be a taxman, I think that if you go down the line of saying that your brother was the true owner of the property then you will be committing fraud.
However, I really can’t explain this in logical terms but I gave what appears to be opposite advice here http://forums.moneysavingexpert.com/showthread.html?p=14003451#post14003451
I think that you and your brother are perfectly placed to establish the fact that his transfer of legal ownership to you has no tax consequences but if you stray from the line that you have always been the beneficial owner you will be developing a future tax nightmare

wajj2004

Thanks for all your advice, you can imagine how scared my brother is feeling at the moment and how the guilt is going around my head, a mega tax bill is something that occurs in most peoples worst nightmares and is hard hitting particulary at such a difficult time financially for most of us.

What documents would I need to collect and present as evidence to the tax office?

silvercar

Going back one step, on paper it appears that your brother bought a home in 1998 and sold it in 2003. Presumably for all this time it was his main address, in tax terms his PPR. I am wondering why the inland revenue have got in touch and asked for a CGT payment? Why, 5 years after a sale, would HMRC get in touch to investigate what seems on paper to be the sale of someones main home?

Was there some other activity on his 2003 tax return that would lead to a CGT query? Has someone informed the revenue that something untoward has occured? People move home a lot, clearly its not a qood use of revenue resources to check whether each house sale of someones main home has any CGT liability. I suspect this is more than a random enquiry on an innocent house sale of 5 years ago.

jimmo

What silvercar says makes a lot of sense. I too find it hard to imagine how or why HMRC would pick up on a disposal by your brother of the house he lived in.
If you care to explain exactly what the taxman said a few months ago maybe we can work out what is going on.
Whilst I’m not trying to accuse you of anything I really think that you have to face the fact that the taxman has some information that suggests that something is seriously amiss. It is also possible that the information the taxman is working on is actually incorrect but that really means that the taxman is going to go through your brother’s affairs with a fine toothed comb. You will be dragged into this sooner or later and you will be subject to similar scrutiny.
Bearing that in mind you seem to have all the basic evidence required to establish that your brother bought the house as bare trustee for you. The funds for purchase came from your bank account, into his and onto the seller. However it is almost certain that the taxman will want a complete explanation from you of how you got the money together in the first place. Where did your savings come from? Were you earning enough to live and save the amount you saved? If you borrowed money who did you borrow it from, did you pay interest? Who did you pay interest to and did they declare their interest received?
As you were the true owner of the house whilst your brother was living there did he pay you rent?
Please take a long hard look at yourself and think about what the taxman may uncover.
As the saying goes, if you are innocent you have nothing to fear. I am afraid that the reality is that if you are innocent you will still face the Spanish Inquisition and will need nerves of steel.
And finally, for now, the taxman brought this up with your brother “a few months ago”. What has happened since? If he has simply not replied to the taxman then he should really have been hit with warning letters and had penalties imposed for failing to reply to enquiries. If he has replied we really need to know what the taxman asked and what your brother has said in response.

wajj2004

Hi, both of you are perfectly right, as the saying goes 'theres no sparks without fire.' About 10 years ago my brother got into stocks and shares having no real experience or financial advisor, he started investing in high risk penny shares and made some good money, then he got sucked in and started buying more and more shares and the broker never refused or capped his buying.

As its well known there was a huge market crash and shares prices tumbled unfortunately he made a massive loss, he had to sell his shares and remortaged his own house to pay the broker back, I think his losses were in the region of £90,000 all those years ago.

As you can imagine he became depressed and was under the doctor for anti-depressants for a several years, in that time he failed to complete any tax returns and we think this may have triggered the tax investigation.

As for the funding of my property, I was young and full of energy at the time having just started work, they were no working time regulations in place and overtime was limitless at the firm I was with. I started working 16 hours a day week in week out for a number of years, my take home was over £500 a week and because I was at work all the time I never got to spend any of my money. Looking back it was possibly one of the best sacrifices I made.

jimmo

Sorry if we are dragging more and more information out of you but tax really is personal.
Anyway there is a good chance you will have to go through all this again, at least with the taxman and maybe with a professional if it turns out you need one.
As I understand it at the moment the taxman’s enquiry is into your brother. You are technically not involved but it is almost certain that you will be dragged in at some point.
Your brother got himself in a financial mess and re-mortgaged his own house to pay back the broker. Fair enough, but if he owned his own house why did he move into yours?
Did he move back to his own house after he moved out of yours?
Did he let his own house whilst he was living in yours and did he declare his rental income to the taxman?
As regards his share dealing did he declare the Capital Gains when he was making “good money”? Did he declare his losses when it all went pear shaped?
As you have said that he started this about 10 years ago I imagine that his share dealings are outside of the normal time limit for tax purposes but that could work against him. The taxman can go back beyond the normal time limit to charge tax, interest and penalties on his gains but he cannot go back more than the normal time limit to claim his losses.
So, whilst he may have made substantial losses I rather think that they will not be available to him now.
This could take quite some time but if you explain I think we can get there but I am still worried by you originally saying that the taxman’s query was a few months ago and nothing seems to have happened since.

wajj2004

hi, the query was a few months ago, and since that time he has got himself an accountant and asked for some time to obtain all this old bank statements and share dealing statements, I think he was with Charles Schabb who are no longer trading or were taken over and this has caused a few problems.

As for his share dealing exploits they were short lived and as far as I can remember all his profits and losses occured in the one year.

I guess I've already been dragged into this but luckly I have kept most of my bank statements and p60's, would these be sufficient to prove that I was the beneficial owner? Would a covering letter from myself also help?

thank you

jimmo

Glad to hear that your brother has got an accountant but, if I was still working I would still have an awful lot of doubts about his story.
From your point of view, you seem to have a fairly convincing story of earning high wages with below average expenditure and should not have a problem justifying your savings. Your bank accounts will show a gradual build of savings so you should be able to relax.
To be honest, I can’t find it in me to advise you to relax because whilst my gut feeling is that you are telling us the truth from your own point of view your brother could well be in deeper than he is telling you or even admitting to himself and his accountant.
Also you seem to have missed quite a lot of the questions I put in my last post but the most worrying thing to me is that, as a former taxman, I still cannot fathom out what the taxman has on your brother.
It still doesn’t make sense to me but something is still amiss.

wajj2004

I really don't know what to say, expect that my greatest worry is about paying capital gains on a house I paid for and made the foolish mistake of asking my brother to complete the transaction.

I keep seeing a £30-40,000 tax bill and its not helping my sleep at all.

Thanks for all your advice these last few days, it has been much appreciated.