Confused about CGT

mja12

Dear All,

A quick (and hopefully straightforward) question. I have tried to find the answer but have only resulted in getting more confused somehow. To give the details:

Parents made cash purchase of a property for £95,000. Property was placed in my brother's and my name for tax reasons I believe. After 5 years I graduated, removed my brother from deeds and remortgaged for £98,000 to pay my parents. Had a couple of friends informally rent other rooms which always remained below the tax threshold for 'rent a room scheme'.Partner moved in Aug 2009. Bought second home Feb 2010. Took £20,000 against equity for 'maintenance'. Rented house for 12 months. Hoping to sell next month or two for £160000. Getting married in 8 weeks.

Numbers - total period is 87 months. 73/12 I lived there. 14/12 was rented. Gain subtracting losses = £55,000. I am a higher rate taxpayer.

1).Am I right in thinking I will be exempt given it is within the last 36 months of ownership.

2).Is this void given that the property was rented?

3). If so am I right in thinking I will get £40,000 lettings relief. Is any CGT only applicable for the 14/12 it was rented (i.e £55,000/87 months total ownership x 14 mths rented = £8850).

4). If I am liable is there any further tax relief deferring the sale until after I am married.

Sorry, that wasn't so quick. Hopefully it will be a simple CGT = £0!

Many thanks for any help.

TrickyDicky101

AFAIK:

1) Yes
2) No
3) N/A
4) N/A

Note: Above does assume this was your Primary Residence

00ec25

warning: for the period it was owned by your brother did he also live there as his primary residence?

if not, then when he transferred his share to you that was actually a CGT disposal event and he should have paid CGT on the gain on his share at that time (using open market values as this was a connected part transaction). Transfers between siblings where it is not the primary residence of both are not exempt from CGT

as for your CGT position, trickydicky has answered that

mja12

Many thanks for the replies.

Surely my brother cannot be liable - he has neither paid a penny or received one.

TrickyDicky101

If it was your brother's prmiary residence during his time of ownership then he should be OK with regards to no CGT payable as 00ec25 stated.

00ec25

mja12 wrote: »

Many thanks for the replies.

Surely my brother cannot be liable - he has neither paid a penny or received one.

sorry but not that simple
because your parents "gifted" the property to you for £0 actaul cost for either you or your brother, then when either of you sell up it is techncially treated as a sale of a nil cost asset and so is potentially liable to CGT on 100% of the difference between what you paid for it (£0) and what you sold it for (£x)

BUT in your case this liability is zero because it was your main residence all the time you owned it

IF your brother did NOT live in it as his main residence for the entire time he was on the deeds as an owner, then when his share was transferrred to you, this is technically referred to as a disposal between "connected persons" (you and him are siblings) and therfore HMRC require that the "disposal" is valued at full open market value, even if no cash actually changes hands - clearly this is designed to catch your scenario ie an asset that cost the receipient nothing (gift) or very little (discounted) is later sold by them at full price thus moving the money down a generation

however as stated if he lived there then his private residence relief reduces his liability to zero just like it did for you

I appreciate you see this in terms of cash movements and so do not think it applies, but he needs to know what his position was when the transfer to you was done so he can defend himself if HMRC enquire.
Of course if he never lived in it at all then that is a more risky, albeit technical, matter ....

John_Pierpoint

Are you sure that mum and dad did not lend you the money and then you bought the house?

It sort of looks a bit like that?!

jimmo

When you say that your parents bought a property and put into the names of you and your brother, there are, at least 3 possible, relatively simple, interpretations of that.
1) Your parents bought the property as their own asset and you and your brother became the legal owners ( the names on the title deeds) as bare trustees of your parents.
2) Your parents bought the property and immediately gave it to you and your brother.
3) Your parents gifted £95,000 to you and your brother and, you and your brother bought the property.
Each of those would create different potential tax difficulties and, quite frankly, you need to ask yourself whether your parents' action of buying a property in the joint names of you and your brother was a professionally thought out tax planning device.
If it was, your best source of advice will be the professional person who devised the plan.
If it wasn't and was something that your parents did off their own back you will almost certainly need a Philadelphia Lawyer to sort out the mess.

John_Pierpoint

What is a Philadelphia Lawyer?

Is it a politically correct way of saying "Jewish Accountant"?

jimmo

What is a Jewish Accountant?

My mother first introduced me to the term "Philadelphia Lawyer" over 50 years ago and I assumed it was pretty well known.
http://en.wikipedia.org/wiki/Philadelphia_lawyer

mja12

I have checked the deeds and both my brother and I are named as the buyer's. Very concerned for my brother - he was 19 at the time living at home working part-time and now's he's liable for a significant tax bill!!

Parents did not seek any financial advice. It was viewed as a loan until I graduated and could get a mortgage. Not sure why they added my brother's name - think they worried I would run off with all the profit if it increased significantly! Will speak to them to try and clarify details.