Capital Gains Tax

Jonny_Dangerous

My Grandfather transferred his property into the names (jointly) of myself and my two siblings a couple of years ago - my Grandfather's way of securing our inheritance .

He and my grandmother continued to live there until recently, when they sold up (with our consent!) and bought themselves a new property.

The proceeds of the sale have been split between my siblings and we each received a cheque today with our share.

As I am already a homeowner, my understanding is that I will need to pay capital gains tax on my share, as I am effectively selling a second home (as my Grandfather's house is partly in my name). Reading the HMRC website, it says that the allowance is £10,600 so no Capital Gains Tax on the first £10,600, but I will have to pay 18% on the remainder.

Does this sound right? Is there any (legal!) way of avoiding this tax? Any help or suggestions gratefully accepted!

Many thanks

Jonny

terryw

Without checking and based just based on my memory, as a grandchild you are a "connected person" and you can deduct the value of the property when transferred to you from the selling price to give the capital gain. In other words you do not have to pay on the full sale price.

I hope that someone comes along to confirm this and perhaps explain it a little better.

00ec25

you will indeed be liable for CGT, how much you pay is another matter

the gain is your share of the difference between what the property sold for and its "purchase" price. On the assumption that GF gifted the property to you then yes the connected person rule applies and so your purchase cost wil be the open market value at the date of the transfer. Establishing what that value was can be open to manipulation - ie your grandparents continued in occupation so HMRC can claim a low value on the basis the property could only be valued in the open market as a property with sitting tenants. You on the other hand obviously want the market value to be as high as possible so as to reduce your gain

having worked out your gain then yes the only way to further reduce that is the 10,600 allowance - but remember this is against your own share not just the total gain

how much you pay depends on your total income and what tax code you are on, best done as an example assuming standard tax code of 747
say the gain (after personal allowance 10,600) is 40,000 and you have a job which pays 30,000 gross per year. Your total "income" this year is therefore 70,000 and therefore is above the threshokld of 42,475 at which the higher rate CGT kicks in, In this example therefore yoyr tax would be :
42475 - 30000= 12,475 @18%
plus
40,000 - 12,475 = 27,525 @28%

(ie 12475 + 27,525 = total gain 40,000 but taxed at 2 different rates)

ceeforcat

I would be more worried about the inheritance tax implications of your grandparents gifting a house and continuing to live in it. Then the beneficiaries of the gift, gift the house back to the grandparents. How have they financed the purchase of the new house?