CGT when retain part ownership of house

Adlibjac

Last tax year we (husband and I) sold a jointly owned house to our son. This was not our main property and we had allowed our son to live there rent free for a couple of years before purchase (long story - we had planned to rent it out but he needed somewhere to live - yes, he is lucky!).

However, he could not afford a mortgage for whole cost of house, so he purchased 75% and we retained 25% ownership of house.

This was all done above board with solicitors and bank fully aware of situation. We are hoping that he will buy the final 25% in a few years when he is earning.

We have had legal advice throughout the process but want to ensure we get the tax correct.

I am now considering how to express this capital gain on our tax form.

Would this be correct (not accounting for buying and selling costs. Just basic idea):

Sale price £200,000
75% £150,000 use this figure

Purchase price £180,000
75% £135,000 use this figure


Capital gain = £15,000 (divide this between 2 owners)


New capital price of 25% owned = £50,000 (25% of sale price)

So if sold final 25% to son in future for £60,000 (if house then worth £240K) then gain would be £10,000.

This is simplistic as I have not included any costs etc.

Does this make sense?
Is it correct?

And finally.....how the **** do I express this on my online tax return? Argh!

madgagoo

Adlibjac wrote: »

Last tax year we (husband and I) sold a jointly owned house to our son. This was not our main property and we had allowed our son to live there rent free for a couple of years before purchase (long story - we had planned to rent it out but he needed somewhere to live - yes, he is lucky!).

However, he could not afford a mortgage for whole cost of house, so he purchased 75% and we retained 25% ownership of house.

This was all done above board with solicitors and bank fully aware of situation. We are hoping that he will buy the final 25% in a few years when he is earning.

We have had legal advice throughout the process but want to ensure we get the tax correct.

I am now considering how to express this capital gain on our tax form.

Would this be correct (not accounting for buying and selling costs. Just basic idea):

Sale price £200,000
75% £150,000 use this figure

Purchase price £180,000
75% £135,000 use this figure


Capital gain = £15,000 (divide this between 2 owners)


New capital price of 25% owned = £50,000 (25% of sale price)

So if sold final 25% to son in future for £60,000 (if house then worth £240K) then gain would be £10,000.

This is simplistic as I have not included any costs etc.

Does this make sense?
Is it correct?

And finally.....how the **** do I express this on my online tax return? Argh!

You're almost there, couple of things:

You can't simply use the sale price as you have sold to a connected party. You must use the market value (which is the price you could have sold for on the open market). This may be the same as the price you sold it to your son for & it may not. A valuation may be required, although you can submit a CG34 to HMRC and ask them to agree your figure.

The remainder of the house is not revalued in your hands, so in the example above, your remaining base cost would be 25% of the £180k = £45k. Your son's base cost would be the market value of his 75%, £150k (which is the figure you have paid tax on).

Adlibjac

Thank you for your reply.

We do have some proof of value as the bank did a valuation at the time of sale in order to approve son's mortgage. We sold at that price.

I will hunt it down and file with my tax return documents (I am that organised!) so that we have proof if they query in future.

How do I show my calculations on electronic return, or do I not show them and simply keep that for my reference and expect them to trust me unless they decide to do an investigation?

I am so careful to try to do everything correctly, but it is so frustrating that we 'average' people have to account for every penny while the 'big boys' con the country out of billions.

Adlibjac

We do have to submit an annual return as we have other investments.

I am aware of how to include the figure for CGT. It's just that in this case the calculation is not straightforward. Do I have to show how I came to the figure used? Is there somewhere on the return to include calculations? Or do HMRC take your word for it?

madgagoo

Adlibjac wrote: »

We do have to submit an annual return as we have other investments.

I am aware of how to include the figure for CGT. It's just that in this case the calculation is not straightforward. Do I have to show how I came to the figure used? Is there somewhere on the return to include calculations? Or do HMRC take your word for it?

You can (and probably should) attach details of the calculation to the tax return. I use professional tax return software which can attach a PDF schedule, so I'm not 100% on how to do it through HMRC's online service but there should be an option somewhere to attach a file.

Just a PDF/Excel document detailing the proceeds, cost and incidental expenses should do the job.

Wayne_O_Mac

Adlibjac wrote: »

Would this be correct (not accounting for buying and selling costs. Just basic idea):

Sale price £200,000
75% £150,000 use this figure

Purchase price £180,000
75% £135,000 use this figure


Capital gain = £15,000 (divide this between 2 owners)


New capital price of 25% owned = £50,000 (25% of sale price)

So if sold final 25% to son in future for £60,000 (if house then worth £240K) then gain would be £10,000.

This is simplistic as I have not included any costs etc.

Does this make sense?
Is it correct?

And finally.....how the **** do I express this on my online tax return? Argh!

You've only transferred part of the property (at market value, as already noted), so it's a part-disposal.

You need to work out your costs using a special formula A/(A+B), which is then multiplied by the total cost
A = Consideration received (in your case, the market value of the 75%)
B = Market value of the remainder (i.e. the market value of the 25%)

It probably won't make too much of a difference, but be warned that the market value of 25% will probably not be the same as 25% of the total market value.