Capital Gains Tax - advice needed

smreynard

Myself and my brother are executors in the sale of my late father's bungalow. Two days ago, the sale was supposed to have exchanged and completed on the same day but the elderly couple who were buying it had their buyer pull out at the last minute. They were left crying with all their belongings packed in boxes and we were left with having to try to re-sell the bungalow again.
Since we had already had another buyer let us down at the last minute in a previous attempt at selling it, we decided not to put it back on the market but to buy the old couple's house instead so they can move into the bungalow and we can re-sell their house. There were various reasons behind this decision to do with emotional ties etc. and it seemed silly to have to try to resell two properties when we could offload the bungalow and have some cash which is the difference in the selling prices (£19,000).
I also work for the estate agent who was selling both properties and know that the elderly couple's house should sell easier to a first time buyer. We have been offered reduced fees by both the Agent and Solicitor because we have enabled two sales to proceed when they would otherwise have failed.
Anyway, what we would like to know is, when the house is resold how much profit are we allowed to make without having to pay Capital Gains Tax? As joint purchasers do we both have an allowance of £8,800 or is it just the one?

PoorDave

smreynard wrote:

Myself and my brother are executors in the sale of my late father's bungalow. Two days ago, the sale was supposed to have exchanged and completed on the same day but the elderly couple who were buying it had their buyer pull out at the last minute. They were left crying with all their belongings packed in boxes and we were left with having to try to re-sell the bungalow again.
Since we had already had another buyer let us down at the last minute in a previous attempt at selling it, we decided not to put it back on the market but to buy the old couple's house instead so they can move into the bungalow and we can re-sell their house. There were various reasons behind this decision to do with emotional ties etc. and it seemed silly to have to try to resell two properties when we could offload the bungalow and have some cash which is the difference in the selling prices (£19,000).
I also work for the estate agent who was selling both properties and know that the elderly couple's house should sell easier to a first time buyer. We have been offered reduced fees by both the Agent and Solicitor because we have enabled two sales to proceed when they would otherwise have failed.
Anyway, what we would like to know is, when the house is resold how much profit are we allowed to make without having to pay Capital Gains Tax? As joint purchasers do we both have an allowance of £8,800 or is it just the one?

Allowance is personal, so if there are two people involved, they each get £8800 allowance.

But this is only against the gain made per property, not the full price, if you buy then sell. Not sure what would happen on the first property that you inherited, then sold, though...

smreynard

We understand that we don't pay CGT on the bungalow as we are executors for our father's estate and the proceeds of the sale are divided up between us, his grandchildren and nephews. So we didn't officially own the bungalow it was still our father's estate. Whereas with the house we would be buying it jointly in our names and then selling it again so it would be subject to CGT but if we each are allowed £8,800 then that will not be a problem.

silvercar

smreynard wrote:

We understand that we don't pay CGT on the bungalow as we are executors for our father's estate and the proceeds of the sale are divided up between us, his grandchildren and nephews. So we didn't officially own the bungalow it was still our father's estate. Whereas with the house we would be buying it jointly in our names and then selling it again so it would be subject to CGT but if we each are allowed £8,800 then that will not be a problem.

I agree with your calculations.

I can also see the logic of what you are doing, if the other place is easier to sell. We did a similar move to complete a house chain, buying the smallest house in the chain as well as our now home when the FTB dropped out.

The only worry I would have (this may be moral rather than legal) is that, working in the trade and reselling the property quickly and buying off elderly people and already talking of profit taking, are you making a profit out of people's circumstances. As long as they have all their faculties and you are helping them make the move they want its fine, but I would be worried about being accused of profiteering.

smreynard

No we wouldn't be making a profit just breaking even, but on paper it would look like we'd made around £12,000, it's a bit difficult to explain. In order for the old couple to avoid stamp duty, instead of them buying the bungalow for £134K and selling us their house for £115K it was decided to both reduce the prices by £10K. We are therefore buying theirs for £105K with £10K equity in it. That way they avoid the stamp duty as they would be paying £124K which is under the threshold. We would then need to resell their house for £117K to cover costs and break even but on paper it would look like we'd made £12K profit. Told you it was complicated! Obviously we don't want to get clobbered for CGT otherwise we'll be out of pocket.

silvercar

I can see that works, the only problem will be if a prospective buyer checks out the price online and sees what you apparently paid only a few months previously!