CGT Mitigation/Avoidance Help Please

Grr

Hi,

I'm new to the forum but have visited on several occasions. I should start off by pointing out that however flawed it is I do believe in the tax system and in paying taxes. I am not posting to grab as much money as I can, I am posting to hopefully fix in some measure a situation which should not have arisen. The story is as follows.

At the beginning of 2nd year University I wanted to buy a flat rather than rent as it seemed like the best idea. My parents didn't like the idea of me having hold down a well paying job in addition to my studies so offered to buy the flat for me with a view to me paying them back at a later time the amount they paid. In this instance £60,000.

I am now at the stage of wanting to buy this flat from them. The flat is now worth £140,000. They intend to sell it to me for £60,000 as promised. This will incur CGT of around £14,000 I believe.

This flat is my primary home and has been since purchase but my parents took terrible advice at the time and put it in their name. If the flat had always been in my name it would not be liable to CGT.

Is there any way that we can make a transfer with a view to satisfying the initial intent of this purchase?

Any help is greatly appreciated.

RayWolfe

Any calculation of CGT starts with the market value at transfer ... particularly when it's in the family. I think you'll understand why!

00ec25

you forgot to take off your parent's annual CGT allowance
I assume your parents hold it in joint names in which case the taxable gain is reduced by their own allowances, ie £10,100 each if sold this tax year
the tax would therefore be 140 - 60 = 80 - (2x10.1) = 59.8 x 18% = £10,764

assumes neither parent has made any other realised capital gains this year (ie physically sold anything) or has any losses brought forward

your are nonetheless buying a flat worth 140k for a net cost of 71k so not bad

you will possibly find that the value you declare to HMRC for the flat will be checked by them with the Valuations Agency so don't make the mistake of trying to get a tame estate agent to undervalue it for tax purposes

James,_Oxford

If your parents bought the flat for you, as you describe, then it may be possible that the legal position is that they only hold the legal title to the property and you hold the beneficial title. It may then be possible for the legal title to be transferred to you without there being a charge to capital gains tax.

This is just a possible pointer. Take some good legal advice.

Grr

Thank you very much for the replies. We should be meeting with a legal advisor sometime next week so really just hoping for ideas or fodder here.

00ec25 - "your are nonetheless buying a flat worth 140k for a net cost of 71k so not bad" - I understand this but as my parents are intending to sell me it for 60k as promised they will have to pay 11k for the privilege. Add to that the fact they have already incurred interest on the mortgage, interest I will also be paying on my mortgage, and it starts to smart. This was always intended to be my flat and it seems that due to bad advice we will have paid double interest + 11k. This is why I'm looking to mitigate - surely this is not the intent of current tax provisions

James - Thank you very much for this intriguing pointer, I'll be sure to bring it up.

Regards.

00ec25

Grr wrote: »

This is why I'm looking to mitigate - surely this is not the intent of current tax provisions

sorry didn't mean to offend, I was still thinking about a previous post where as another poster pointed out they "could not see the wood for the trees" because they were objecting to paying tax at all and thought it would be better to earn nothing and save paying income tax than earn over the tax threshold and end up paying tax, personally I'd rather have £80 out of every £100 than earn £0 and not pay £20 tax.

I agree tax planning would have saved you money but hey ho you've still got a net gain, a lesson for next time?

Grr

00ec25 wrote: »

a lesson for next time?

Indeed. The plan is to look into it myself (as I'm now doing) rather than leave it to my parents, get a half decent solicitor who knows what he's talking about, and even then DON'T trust him at his word.