Really confused!!

tightasanats..._2

My very kind father-in-law has given my wife & I a building plot. So I am in a quandry, ideally we would like to take full advantage of his generous gift. So we were thinking of selling our property, building on the plot and then living in the house. We were convinced there must be some CGT or inheritance tax (or both?) to pay if we were then to sell that house and move on. Is the time you spend in the house a factor in this or not? eg must you live in it for 5 years to be exempt CGT etc ? The in-laws live quite a distance away so we would probably move to the area for sometime as we have young children and both our jobs are commutable.

WHA

There may be inheritance tax on the value of the land if your FIL dies within seven years.

If you build a house and live in it, then it will be your principal private residence and any profit you make when you sell it will indeed be exempt from capital gains tax. This holds true only if your intention from the outset is to build a house and live in it - HMRC may refuse the exemption if they believe that your intention was to let it out or sell it on, so you really have to live in it for a fair amount of time - the time is not prescribed in law - it is a matter of fact of the individual circumstances. If you lived in it for a good year or two, then you probably have no problems. Also, if you sold up and did the same thing again (i.e. build another, live in it and sell it on), then HMRC may charge you tax as they may claim it is a business that you are undertaking (by doing the same pattern time again).

Overall, though, you're basically in the clear and tax - free.

cash99

If the market value of the land now is more than your FIL paid for it then he will have a capital gain.

Gifts are treated as disposals for CGT purposes, unless the asset qualifies for hold over relief.

If large numbers are involved you may want to seek professional advice before the gift is finalised, if it is not too late.