Capital Gains Tax advice - tricky question

Tamalama

Hi there

If anyone can advise me on the following situation, it would be much appreciated.

My mum inherited a property but kept being gazundered while trying to sell it several years ago.

So I decided to buy it from her at a good price, to hold on to it until I could sell it again for a decent price.

We agreed a price of £250k. The most I could raise at the time was a £175k mortgage so the remainder was cited as a 'gifted deposit'. (For the purposes of the mortgage company only).

So this is actually a loan rather than a gifted deposit and as such I still need to pay her the remaining £75k.

I have now sold for £310k so I can repay this. However, as the £75k is no longer considered a 'gift' and will be returned to my mum, will I have to pay CGT on the full £135k?

Does anyone know how this would work?

Who can I ask to get advice on this if not? Would my local tax office help?

Thanks very much.

silvercar

As you and your Mum are linked, the starting point is the market valuation of the property at the time you bought it.

So your gain is 310-250=60k. Did you live in the property at all?

Tamalama

OK yes, so the market valuation at the time was indeed £250k.

No I have not lived there unfortunately, it has been rented out.

So would I only have to pay CGT on the £60k?

What about the gifted deposit which is no longer a gift? Isn't there some sort of tax implication there?

Thanks for your help in advance.

00ec25

your tax exposure is only in relation to CGT on a property you have never lived in but purchased from a family member and therefore this situation is covered by the “connected persons “ rules applicable to CGT

http://www.hmrc.gov.uk/cgt/property/calc-cgt.htm

as long as you have some form of supporting evidence to show realistic market value at time of acquisition from mother was £250k, then the fact that you owe her 75K from the proceeds now that you are selling is irrelevant – you cannot claim that 75K as part of the purchase cost, you are only allowed to claim the market value

you tax liability is therefore as stated 60k less your personal allowance 10,600 and legal/EA costs of buying and less legal (and EA?) fees associated with its purchase and sale

Re the tax implications of the 75K
Given what you said about the original mortgage then I assume you have no paperwork between you and mother recording the fact that the balance of the original value was to be paid back to her on sale? If you do then you can argue it was an interest free loan from mother to you and you are now repaying it in full without any interest – ie there would be no tax implications for either of you

In the absence of such “proof” you are now paying her 75K having sold your, not hers, property. Technically speaking therefore that 75 is now a potentially exempt transfer (PET) liable to inheritance tax on your (not her) estate. One assumes that concerns about IHT are not very high for you because, as a PET, if you live for another 7 years that it will be free of IHT anyway!

There are no other tax implications re the 75k

xylophone

Your mother owned a second property. Market value was £250,000
Presumably your mother paid any applicable amount of CGT on the sale at the time.
An official record was made that your mother had gifted you £75000. It seems to me that for any IHT liability this would stand as a gift. If this gift was made more than seven years ago, it will have dropped out of her estate for IHT purposes. For CGT, the market value of £250,000 would stand.

You have now sold the house - CGT is due on the difference between the market value at purchase and the selling price, less your CGT allowance/certain fees etc. http://www.hmrc.gov.uk/cgt/property/calc-cgt.htm

You are now, for IHT purposes (your estate) gifting your mother £75000 It cannot be repayment of a loan because officially she made you a gift?

No doubt your solicitor will be able to advise on the specifics of your case.

Tamalama

Thanks everybody. That's really helpful and a relief to know that I don't have to pay CGT on all of it.