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Capital Gains Tax Query
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Catmad
Posts: 9 Forumite
in Cutting tax
Hello - my mum and dad bought their house in the early 1980's for £22k and they divorced some years later. In the divorce settlement they are both entitled to 50% each of the property - my mum and I both live in the property and my dad has remarried and has another property with his new family. My dad is offering to sell me his half of the house for £50k (it is worth approx. £250 - £125k each) - the only stumbling block in this plan is that he is worried about having to pay Capital Gains Tax and how much it would be? Can anyone advise me as I am going round in circles looking at various sites about it. Many thanks.
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Comments
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You and your dad are connected persons so regardless of whether he sells or even gifts his share of the house to you he will be deemed to have sold it at open market value.
http://www.hmrc.gov.uk/manuals/cgmanual/CG14560.htm.
With regard to open market value it is important to remember that your dad will be disposing of a half share interest in the property. In my working days half share interests were typically discounted by 10% to 20% so that a half share interest in a £250,000 house would usually be £100,000 to £112,500.
In your dad’s case however it is also important to recognise that what he is selling is not a share of a house with vacant possession. It is a house where the other half share owner is already living and will continue to do so.
What is the open market value of that? In other words how much would a complete stranger be prepared to pay for the privilege of becoming a joint owner with a woman he doesn’t know?
I have no idea and would suggest that your dad needs professional advice on that but needs to be careful exactly what is to be valued.
He also needs to look at what private residence relief is available to him. Very roughly speaking his capital gain will be divided between exempt periods (periods when he lived plus the final 18 months of ownership) and non exempt periods when he didn’t.
I think this is the best guide available for private residence relief.
http://www.hmrc.gov.uk/helpsheets/hs283.pdf0 -
Your parents own the property as tenants-in -common?
The property has not been your father's PPR for a number of years?
http://www.gilberts.uk.com/cms/filelibrary/Key_features_of_capital_gains_tax.pdf might be worth a look?
http://www.hmrc.gov.uk/cgt/intro/gifts-inherit-divorce.htm0 -
:oThank you for taking the time to explain this Jimmo, it is very much appreciated0
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