Liable to CGT

smokey77

I am currently living in a property which is mortgaged and owned by my father, it is not his primary residence however. I am in the process of buying a property of my own as a FTB and the house I'm living in (owned by my dad) is being used as a deposit (77K), my fathers name will not be on the deeds or mortgage of the new house it will be solely in my name, will he be liable to CGT or any other taxes and what would be the best way to resolve this. I will be having a deed of trust drawn up as I will be living in the new house with my partner should I have something in the deed stating that my father has gifted/given/loaned me this money? Thanks

CLAPTON

what do you mean the house will be used as a deposit;
do you mean the house will be sold and your father will give you the money
or will he mortgage the property and give you the money

smokey77

The house where I live is owned and mortgaged by my dad in his name he purchased it for 45k and there is a 24k settlement fig on mortgage, it is being bought in as a part x on the new property for 115k. It is not classed as his main residence. The new house will be mortgaged by me and will be nothing to do with my dad but I will be using the equity from the sale of his house as the deposit for my new home, you could say he is gifting it to me I suppose.

CLAPTON

it will count as a disposal by your father at the market price (is 115k the 'selling' price of your father house or the price of your new home)? and so cgt will in principle be payable on the 'gain ' in value.
the fact he is giving you the value makes no difference for cgt purposes although it might make a difference for mortgage purposes

smokey77

115 is the selling price the new home is 168

CLAPTON

well in general the cgt liablilty works this way

selling price 115,000
less buying price 45,000
= 70,000
less costs say 3,000

so gain is 67,000
less 10,100 cgt allowance assuming he hasn't used that already

cgt is charged at 18 and 28% depending upon your father's income, so worst case will be 28% of 56,900 i.e £15,932

you personally have no liability for any tax.

pamstretched

Thanks this is interesting
If a property was remortgaged after the intial purchase would CGT take the new morgage amount as the "buy" figure or the original price paid

Pennywise

pamstretched wrote: »

Thanks this is interesting
If a property was remortgaged after the intial purchase would CGT take the new morgage amount as the "buy" figure or the original price paid

Remortgaging makes no difference. CGT only applies upon change of ownership or sale and is then based on selling price less cost price (less other allowable expenses).

smokey77

He's retired now so it would be taxed at 18% then due to income, can I take into account any improvements on the house e.g conservatory @ 12k, and the purchase won't be completed until June so this would all go into the 12/13 tax year is that right? Thank you

CLAPTON

yes he can deduct the cost of improvements so the gain would be reduced by the 10k i.e. to 46,900

the cgt would be worked out for the tax year of the sale, so if sold in june then it would be tax year 2011-12 and the tax payable by end January 2013

the tax is a bit complicated to work out as it depends upon his other income for tax year 2011-12
the gain is basically added to his other income ; then the proportion between his income and 42,475 is taxed at 18% the the remainder at 28%

00ec25

you need to be more careful with your wording - the completion of the purchase has nothing to do with the CGT - if you meant completion of the sale then it would be in 11/12 tax year with tax payable by Jan 2013 at the latest

assuming he has documentary evidence to support a 12k cost for the conservatory and it was installed after the house was rented out then yes that would increase the cost of the property from 45 to 57

revised cost of 57 still means your father has a gain of around 45 after annual allowance (assuming 3k transaction costs as used by Clapton) therefore it is still possible that some of the gain will be at the higher 28% rate as it will be added to his existing (pre tax) income and the higher rate applies if this total is above the higher rate income tax threshold - on the figuires provided it is highly likely some of it will therefore be at 28%

oops Clapton beat me to it