Deed of Gift CGT liability

joem1619

In 1997 my parents gifted me their house(value £35K),its a gift with reservation as they continue to live in it. No worth £135K.
They are in late 80's now & I think they've landed me a CGT headache from studying this forum.
Can anyone clear up some questions.
Would I get taper relief from 1997?
If I made it my primary residence on their demise how long would I need to stay there to get some extra tax relief.?
Any idea appreciated..

silvercar

You would get a small amount of indexation relief for 1997 to 1998 and then full taper relief for 1998 to whenever. The maximum taper relief is 40% after 10 years ownership.

To make matters worse, in 1997 (the starting point for valuation) they gifted you a property with a non-rent paying sitting tenant rather than a property worth 35k on the open market!

Making something your principal private residence is a matter of fact rather than appearance. If you did this for 6months to a year and changed all utility, credit card and electoral register etc you would gain exemption for CGT for the last 3 years of ownership. So if you had owned it for 20 years by the time you sell, you would gain relief on 3/20 ths of the gain.

You get a CGT allowance of £9,200 if not used elsewhere.

A suggestion: if you have a spouse, put the property in joint names so you each get a CGT allowance.

joem1619

That's very useful Silvercar..So I guess if I sold it in 5 years time for £150K after living in it a year I'd face a worst case CGT bill of around £150K-3/20=£128K-say £20K cgt allowances=£108K-taper relief=£68K @40%=£28K tax to pay approx. Would you agree ballpark £30K tax on the assett.

silvercar

Say it was worth 20k (with sitting tenants) in 1997.

Indexation would bring that upto around 20,640

Profit would be 150-20,640=129k costs of say 3k (estate agent, solicitors for buying and selling) reduces to 126k.

Living in it at the end gives you exemption for 3/15ths ie 1/5 reducing the 126k to 101k.

Taper relief @40% reduces the 101k to £60,600.

Two lots of 9.2k leaves 42,200.

If you are both higher rate tax payers it would all be at 40% so the bill would be £16,880.