parents retirement fund

red777

Hi my dad ,well parents got some property back in 1987 ,they lived in the house and did next door up into flats my dad a small builder ,capital gains ,might be in wrong section but i looked first.
they now are both retired and selling the flat roughly £115-125000 are we right that he will have to pay a third in tax after or before he pays off the intrest only mortgage and will his allowance come into play ,what we understand if they get £120,000 they will have to pay £40,000 then what he owes on mortgage ,any advice thanx

newbie1980

i may be wrong but he will have built up a fair bit of cgt relief since buying
so it may not be as miuch as you think

someone will be along im sure

atush

If they are married, he can put 1/2 of the property into his wife's name. So there will be 2x CGT allowances which can help reduce the gain.

He can also deduct all costs in the renovation, and maintenance of the property against the gain over the years before the 2x CGT exemptions.

Unless the property was all one before the flats, or they lived int he flat, it won't have personal residence relief.

red777

the property was a run down semi we lived in 1 and the other had tennants he later made it into flats sold the upstairs flat and let the down stairs .
Am i right saying say he payed £20,000 and sells it for £120,000 they pat tax on the gain £100,000

CLAPTON

assuming they never lived in the flat then cgt is liable on the increase in price less allowable expenses

what did they pay for the property?

so e.g. if they sell for 120,000 and bought it for 40,000 then the gain would be 80,000
maybe buy/selling cost might be 2,000
so gain would be 78,000

if jointly owned the each would have a gain of 39,000

they each have a cgt allowance of 10,600

so taxable gain would be 28,400

they will pay between 18% and 28% on 28,400 each depending upon their other income

grey_gym_sock

perhaps try asking in the "cutting tax" forum.

in calculating CGT, the mortgage is ignored.

what is taxable is the capital gain, i.e. it's not a % of the sales proceeds. instead, you take the sales proceeds, less the cost of buying, less money spent on improvements (but not on maintenance), and what's left is the capital gain.

each person has a £10,600 capital gains tax exemption (per tax year), so your parents (assuming they own the property jointly) have twice that. any further gain is taxed at 18% or 28% or a mixture of the 2, depending on their total income + capital gains in the tax year.

in this situation, it's complicated, because:

(a) it sounds like they bought a property, and then divided it in 2. this means that only a suitable proportion of the costs of buying can be deducted - basically, you split the costs in proportion to the relative values of the separate properties.

(b) it sounds like there have been significant improvements made, so how much cost can be deducted for them may make a difference.

red777

the property is only in my dads name how easy would it be to put in both or would it be too late as its on the market now

grey_gym_sock

if the property is mortgaged, it requires the mortgage company's agreement. it's called a "transfer of equity", and would cost a few hundred in legal fees.

some posters (on MSE) have mentioned that HMRC might think that making a transfer just before selling is cheating, and might charge tax as if the transfer hadn't been made. i don't know how real a risk that is, though.

maggieann155

CLAPTON wrote: »

assuming they never lived in the flat then cgt is liable on the increase in price less allowable expenses

what did they pay for the property?

so e.g. if they sell for 120,000 and bought it for 40,000 then the gain would be 80,000
maybe buy/selling cost might be 2,000
so gain would be 78,000

if jointly owned the each would have a gain of 39,000

they each have a cgt allowance of 10,600

so taxable gain would be 28,400

they will pay between 18% and 28% on 28,400 each depending upon their other income

i dont think calculating cgt for property sales is as straight forward as that.
i believe the calculations also involve using number of years as a family home, number of years as rented and other factors. .
have a look on hmrc website under cgt.
i think it gives a couple of worked examples.

op, was cgt paid on sale of first flat sold or was that only ever a family home?
perhaps you need the help of a tax specialist as the situation is quite involved, so as not to fall foul of hmrc?

atush

if half the property was transferred to you or someone else, HMRC would not accept it. But AFAIK, they have to accept the transfer of half to a spouse as that is allowed. Married couples are allowed to swap assets between them w/o charge. One of the benefits of legal marriage over co habitation.

It will be worth the money spent doing so, so consult a solicitor.

As far as I have seen here, the property was never lived in by the family so would not be eligible for private residence relief.