CGT on gifted first property?

StarsDie

In 2006/2007 my mother inherited a property, which would be classed as her second property. She instantly had the property signed over to me and my brother to get us onto the property ladder. Cutting a long story short the property was in such a state we literally had to demolish it and have it rebuilt to building regs. At the time it was given to us it was worth approximately 40k and today it has been valued at 140k and soon to go on the market. My concern is do me and my brother have to pay any kind of tax upon sale of the property? To clarify we both rent at the time being and the only property we own is the property in question, but since it's not been in any state to live in until now does it still fall under our primary residence, therefore exempt from any tax?

xylophone

http://www.hmrc.gov.uk/cgt/property/basics.htm
You must have used the property as your only or main residence during the time you've owned it. There are also other factors that you need to consider to work out what Private Residence Relief you may be due.You must have used the property as your only or main residence during the time you've owned it. There are also other factors that you need to consider to work out what Private Residence Relief you may be due.

Better check with HMRC?

holly_hobby

No its not your primary residence if your primary residence is elsewhere - which it is.

So, there will be CGT liability for either you or your bro, if you don't reside in it before you sell it.

There are various reliefs, deductions and allowances that may be applied against any gain even if you haven't lived in it such as costs associated with the acquisition and disposal, professional fees, enchancement expenditure (not general maintenance/decorating), plus your annual unused CGT exempt reliefs (£10,900 per person per annum 2013/14).

If the property is your genuine primary residence at the point of sale, then you should be able to apply full primary residence relief to your share of any gain (ie nil CGT liability) - but HMRC may want robust proof of this, which could be provided by utility & ins bills in your name, registration at local Drs/council tax, driving licence, HMRC having this as your registered address, etc, etc (list not exhaustive or a gte that they will accept your claim if only a short period resident before sale).

I've attached a HMRC link for you to give you a bit more meat on the bones ... http://www.hmrc.gov.uk/cgt/property/calc-cgt.htm#4

Any CGT liaibilty is reported via SA.

As always, forums are great for guidance, but please always verify your situation with your tax practioner or of course HMRC directly.

Hope this helps get you started.

Holly

zygurat789

When your mother inherited the property it would have had a value in the estate of the deceased, this is your cost plus any associated fees ie legal.
From what you say all the expenditure you have incurred in getting the house into its present state can be added to the cost.
When you sell the property you will not receive the full amount, legal, estate agent fees etc will have been deducted. What you receive are your proceeds.
Take the cost from rthe proceeds and you have your capital gain.
Deduct £10,900 X 2 for you and your brother
You pay CGT on what is left at either 18% if you are a basic rate tax payer
or 28% if you are a higher rate taxpayer.
So it is possible for the CG to be taxed part at 18% and part at 28%

System

zygurat789 wrote: »

.
Deduct £10,900 X 2 for you and your brother
You pay CGT on what is left at either 18% if you are a basic rate tax payer
or 28% if you are a higher rate taxpayer.

As you are presumably joint owners don't you each have a separate CGT calculation and payment depending on your individual tax positions?
You can't just multiply the allowance by 2 and then say "you" (singular ?) pay the CGT ?

holly_hobby

Of course Cliff, the return for each beneficial owner must be individually recorded on each of their personal SA return, and pay their own share of CGT liability.

Essentially the end net result for CGT liaibility (at either 18% or 28% taxation), will of course be equal to the residual gain (ie net of deductions) less £21,800 (2 x CGT exemptions)/2. But of course that isn't how it will be illustrated within their personal SA return - I do think however that Z. was just illustrating a simple calc point, rather than how it will be repored - but always wise to clear things up just in case it wasn't written in that context.

Hope this helps

Holly x

zygurat789

Clifford_Pope wrote: »

As you are presumably joint owners don't you each have a separate CGT calculation and payment depending on your individual tax positions?
You can't just multiply the allowance by 2 and then say "you" (singular ?) pay the CGT ?

But there is nothing else in the offing so each will be identical.
And the plural of you is.....?

molerat

Yous ...........

StarsDie

Thank you for your replies. Are there ways around avoiding CGT? If I buy out my brothers share or visa versa does only the one receiving money pay CGT? Or if we both live there as our primary residence can we avoid it then? If so, is there a period we must live there for before we can sell? I appreciate any answers or suggestions.

holly_hobby

If you buy out your brothers share, and if he has no primary residence relief for the property - he will be fully exposed to his gain on his share.

There is really no minimum time for residency, but I woulld suggest no less than 6 mths, and you should be able to provide evidence that thhis is your primary residence, and that your residency is not a contrived move to avoid CGT.

Proof of residency could be evidenced by such things as Votors roll, banking accounts registered there, utility bills in your name there, registration at local Drs, change of address for d licence, etc, etc (list not exhaustive and not a gte HMRC will accept your representation).

Hope this helps

Holly

grey_gym_sock

note that, even if you make the property your principal private residence, that only gives you a partial exemption from CGT.

the period that you live there is exempt, and so (once you've established any residence) are the last 3 years of ownership. in this case, these periods would presumably overlap, so you'd just get the last 3 years exempt. then if, say, your total period of ownership was 6 years, then 3/6 = half the gain would be exempt. you'd then deduct your £10,900 CGT annual allowance from the non-exempt half of the gain.

if that's not enough, you could get some further exemption by letting the property (on commercial terms) for a period, as well as residing there during another period. i.e. you need to do both of those things in order for this relief (called "letting relief") to apply. of course, this would delay the sale even further.