CGT/IHT/GWR applies to property sale?

silvercar

Of course, I would've had the funds if I'd been a money-grabbing so-and-so 19 years ago and turfed my Dad out on the streets, thus burdening the taxpayer with finding him a home, and pocketed 19 years of rent instead!

If you were that sort of person, presumeably your Dad wouldn't have gifted you his flat!

As you have pointed out, it is not 100% clear from the HMRC or the OPSI rules that someone who is gifted a flat from a dependent relative after 1988 cannot be CGT exempt. The rules say rather ambiguously (at least to me!) that residence "must be acquired" before 1988 - BUT BY WHOM?!

If they are referring to the dependent relative, then yes, my Dad had acquired residence before then. But if they are referring to the present owner, no I didn't acquire the residence before '88.

If it refered to your Dad acquiring the residence, he would have had PPR relief, so CGT would not be an issue. ALso you never pay CGT on a property that you never sell.

I think you are clutching at straws here. No harm in clutching at straws if there is money to be saved. In fact would it be worth completing the tax return and claiming relief on the grounds of your Dad being a dependent relative who acquired his home before 1988 and seeing if the inspector actually spots anything amiss?

Sam9999_2

Thanks Silvercar. Yes, sounds like that might be worth a try. I know I'm still clutching at straws here, but do you also suspect that the accountant in the BBC article was mistaken when he suggested Dependent Relative property can be CGT exempt even if ownership is acquired after 1988?

http://news.bbc.co.uk/1/hi/business/4082541.stm

Can't believe such an eminent tax expert could make such a blunder, but if he can, maybe so can the taxman in my favour!

silvercar

Are you referring to this para:

"However, if your mother has occupied the property and lived there rent free since before 5 April 1988, it may be exempt from CGT due to its status as the main residence of a dependent relative. "

As soon as I see the words "rent free" I presume that she can't own the property. You would never refer to an owner occupier living in their home rent free; the question of rent doesn't arise if you own your own place. I think the eminent tax expert's use of english has allowed you to interpret the article in a way that suits you, I don't believe he was saying that you could have acquired it after 1988 if she had lived there before 1988.

You have to look at the risks. You put in a tax return declaring the CGT, you will get a tax bill.

You put in a tax return declaring dependent relative relief and the taxman doesn't spot that the date of ownership is too late and you get no bill.

You put in a tax return declaring dependent relative relief and the taxman spots the date and rejects your use of dependent relative relief. What happens then? I'm not a tax inspector so really I don't have a clue. My guess would be the inspector pours over your tax return with a fine tooth comb to see if there is anything else missed. On the assumption that your tax affairs are quite straightforward, nothing else is noted, the tax return is rejected with a note that you can't claim depenedent relative relief and you still have time to resubmit before the deadline.

As for the probability of it being spotted. I don't know how the inspectors work. If all claims with a particular relief are sent to a specialist unit for checking, it may be more likely to be spotted. I don't know how they operate.

If you wanted to try for opinions on another forum, taxationweb.co.uk may have some gurus.

Sam9999_2

Thanks Silvercar and Jimmo for your latest thoughts.

Silvercar, you said in reation to the BBC report, "I think the eminent tax expert's use of english has allowed you to interpret the article in a way that suits you, I don't believe he was saying that you could have acquired it after 1988 if she had lived there before 1988."

Yes, maybe I am trying to interpret his word in my favour , but when the accountant says "as long as she was there rent free". Is he not just saying that she must not be a paying tenant but could either be: 1) have been the owner before 1988 (as is the case in the BBC report of mother who gifted her house after '88) or 2) simply a non rent payer. The case in the BBC reports is almost exactly the same as mine with regards to the 1988 rule, and yet the expert thinks CGT may be exempt?

The only apparent difference I can see between my case and the BBC report case is that I was gifted the flat from a depedent relative in '89, while the other person was gifted their property in 1996.

Jimmo, I sold the flat just before the April 2008 deadline, so I gather I have to submit before Jan 31 2009? If (after this tax rollercoaster!) I end up having to pay the CGT, does that mean I benefit from having the taper relief as well, or will it be abolished retrospectively in my case do you think?

Thanks again.

silvercar

It is the date of exchange that counts. So you would calculate the CGT on the old rules. Basically you get taper relief and indexation relief but your CGT rate is your marginal tax rate, not the flat 18% rate.

silvercar

Whichever way you decide to go, you will need to declare that you have sold the porperty. The revenue will know from the land registry that the property has been sold, from other peeps comments on here, they do chase people up to declare the sale, though often not immediately.

So for that reason it is certainly worth following Jimmo's advice re getting the online self assessment set up.

The other thing I would do is get a valuation of the property at the time you took ownership. At least then you can calculate the tax that may be due.

When this all comes to a head, I would think that you will end up in conversations with the district valuer about the initial value of the property given that your father was living there.

Whether this is worth the risk/ fight all depends on your situation and attitude. How needy you are of the money from the sale, whether you can afford to lose the CGT you may have to pay, whether you want to face dealing with all the arguements and paperwork. Some people would relish the challenge others would run a mile.

ceeforcat

jimmo wrote: »

So, if you complete your Return to show the actual Capital Gain you have realised but covered the gain with Dependant Relative Relief your Self Assessment will show no Capital Gains Tax due.
On the other hand, if you show the actual Capital Gain and do not claim Dependant Relative Relief your own Self Assessment will determine the amount of tax that you have to pay by 31/1/09.
So, claim Dependant Relative Relief and you risk the imposition of interest because you will eventually pay the tax late and penalties because you will have made a false Return.
Don’t claim Dependant Relative Relief and you will have to pay the full tax and you will have nothing to appeal against.
So you seem to be somewhere between a rock and a hard place but that’s the system.
I do feel a lot of sympathy for the position you are in but the reality is that if you get it wrong it’s going to cost you big time.
I am still covered by the Official Secrets Act and really cannot say anything about your chances of being subject to an enquiry if you claim Dependant Relative Relief, in my view, falsely.
Your problem is that, hopefully as far as I am concerned, you cannot sue me if I have got this wrong. Also you cannot sue the big wig who wrote the article on the BBC because his advice was general, not specific to you.
Take the tax hit and move on. That’s what I would do.

Back again – seems I have caused some confusion since my last post.

O.K. I appreciate that jimmie is not familiar with Self Assessment and is also bound by the Official Secrets Act – I’m not and will say whatever I like.

Firstly, a return can be amended for any reason– there really isn’t a problem although this will obviously draw attention but that is not the issue here.

I would take the following approach:

Declare the full Capital Gain and pay the tax. Tick box 20 to state that some figures are provisional (the declared gain) and, in the additional information box, outline the problem and the steps taken to resolve it.

In my view, the property does not qualify as exempt for the reasons stated in the attached HMRC helpsheet, page 7.

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

Sam9999_2

Thanks everyone for their replies recently.

Silvercar, you made a rough estimate of my CGT bill earlier in this thread, but this was using the latest method. I think I my bill would be calculated on the old system with Taper/Indexation relief as I sold the flat before April 08? Does anyone have a rough idea of the threshold and rates etc, to give me a very rough idea of my likely CGT bill. If it is needed, I earned £30k gross in the 07-08 tax year. Thanks.

silvercar

My turn to cause confusion!

This all seems unfair on you, so I had a dig around on the net.

You could argue that a bare trust has been created, you were the trustee and your father was the beneficiary. This would enable the property to be considered as your father's PPR and avoid any CGT for you.

I have no knowledge of trusts, so can't answer any questions this may raise. Hopefully someoen else can.

Sam9999_2

Thanks Silvercar. I like your idea of causing confusion :beer: Your idea of arguing that a bare trust is along my lines of thinking in the sense that I was in effect just the legal owner and my father was the beneficial owner of the property.

From the research I have done so far, I understand that in the UK, state departments like the HMRC (for IHT i.e Gift with Reservation) and the DWP take the beneficial owner as the one who "really" owns the property. It seems incredible to me that the HMRC can then move the goalposts for CGT and take the legal owner as the one who "owns" the asset. Surely the real owner of property is the one who can decide when it can be sold. At least from a moral perspective, was there really any option for me to throw my Dad out on the street at the taxpayers' expense and sell the flat when he gifted it to me?

In the end, this is maybe all academic argument and of course, rules are rules however anomalous they may be! But I have to concede that with gritted teeth! :mad: