capital gains on house rented to parents

shilling_rabbit

My daughter purchased a property for my husband and me to live in in March
2002 (she has her own home). The property was £87k and my daughter funded this with a £67k BTL mortgage. Since then she has remortgaged the house as we remodelled the property for my husband's disability.
The mortgage is now £123k - the property is worth (estate agent advice) £220k.
My husband and Iwant to retire abroad, with my daughter selling this property to buy a home for us abroad. We have looked at the CGT information on this forum and also the IR website and cannot fathom what the CGT liability will be.
If we 'swap' homes for 6 months could she escape CGT, or if we wanted to move nowand sell the property for £220k what would the CGT be? She has never lived in the property and we pay rent to cover the interest only mortgage.

silvercar

Your CGT liability is based on the difference between the selling and buying price, less the costs of any improvements.

220-87=133 less say 5k buying and selling costs and say 30k improvements =98k.

5 years ownership would give taper relief of 15%, so the 98k reduces to 83.3k.

Less CGT allowance of 9.2k= 74.1k

Tax would be payable on this 74.1k at your daughter's marginal tax rate. At 40% this would be a hefty 29.6k. Payable in the January after the end of the tax year in which the sale took place. So sell now and pay the tax by Jan 2009.

If you swapped homes (and I mean really swapped, not just on paper), provided the IR accepted this, you would be exempt from CGT for the last 3 years of ownership.

If you sold March '08 ie after 6 years of ownership the last 3 years would be exempt, so the 98k gain I referred to above would now be reduced to 49k.

6 years of ownership would give 20% taper relief reducing the 49k to 39.2k.

Take off 9.2k and your left with 30k. This would be a tax bill of 12k at 40% tax.

shilling_rabbit

thank you so much for this very useful information. If my daughter sold the house we live in and bought another one for us to live in would she still be liable for CGT or would there be a rollover situation

shilling_rabbit

thank you so much once again. my daughter is a single professional who does not have a partner. she has three sisters, two of whom live with me and my husband in the house she owns, they are aged 24 and 25. if i wanted to learn all about property law and tax situations and CGT where would be the best place to start. I am 62 in not good health retired hotelier who loves bookkeeping. Another thing do you know a good accountant and solicitor.

shilling_rabbit

thank you so much for your reply. My husband and i ran into trouble whilst being hoteliers and he went bankrupt. my daughter has been our saviour and it now looks as if she is going to suffer. she bought the house for us because we had been evicted and she borrowed the money off of family to make up the deposit. The housing benefit does not fully cover the mortgage. The improvements for my husband's disabilities included making the ground floor through to and including the patio all one level. A disabled shower in the bathroom, central heating and gas boiler were installed by the council. About £50k was spent on improvements. my daughter is a single professional who does not have a partner. she has three sisters, two of whom live with me and my husband in the house she owns, they are aged 24 and 25. if i wanted to learn all about property law and tax situations and CGT where would be the best place to start. I am 62 in not good health retired hotelier who loves bookkeeping. Another thing do you know a good accountant and solicitor.

shilling_rabbit

looks like we will have to swap houses for a little while - how long? thank you so much for all your help