Capital Gains Tax

DAV122

Thought I had it sussed there for a minute. Anyway, this may help someone in my predicament in the future.

Just to summarise again quickly. My father is disposing of a second house, and I would have liked to rented it from him for a year or two, fix it up and make some money myself from the transaction. In anycase, we wanted to ensure we minimised Capital Gains Tax.

Owing to the new rules on capital gains tax, i.e. 28% over £31k, it kills any profit I personally can make. If my father retains ownership, and I do all the work, the very best I can hope for is £12000. That is without contingency, assuming fully rented house, and max price for house. So in reality, we're looking at less, and for all the effort it isn't worth it for a few thou, especially since it is not going to be my permanent residence.

I'm sure if I was very rich, I could afford a very cunning accountant to circumnavigate the tax laws by setting up a company, transferring everything to shares, and appointing me as an employee, or something to that effect, but being a mere mortal I will get stung either way.

Even if my father transfers the house to me, he has to pay CGT on the transfer. Then when I fix it up and sell it, I then pay CGT at an even higher rate on the money I made.

The best we can do now, is ensure we don't undervalue the house upon inheritance, and apply all possible allowances. I hope I can do this by digging up old newspaper articles form the library, or extracting it from an old estate agent.

The concept of intestacy, whereby my step grandfather was owner by living in the house, thus deferring my dad's inheritance is something a bit beyond the accountants I know. I don't know how to argue that one.

Thanks again

John_Pierpoint

When your dad dies his estate will be valued for Inheritance Tax (IHT) payable at 40% if his net worth, including life time interests, exceeds the allowances.

The CGT value of the house then starts again at the death valuation. The estate does not pay IHT and CGT at the time of death.

zygurat789

John_Pierpoint wrote: »

When your dad dies his estate will be valued for Inheritance Tax (IHT) payable at 40% if his net worth, including life time interests, exceeds the allowances.

The CGT value of the house then starts again at the death valuation. The estate does not pay IHT and CGT at the time of death.

So, do you want to pay IHT at 40% or CGT at 28%?.
If you take the second option then the value of the properrty has been increased and this new value will be used in calculating the next capital gain which will be taxed at either 18% or 28% depending on your total income in the year of disposal.
If you take the first option the property also has a new value, the value used for probate.