Capital gains on 2nd property

cornwell74

Hello,

I own the house the my mother lives in, a small 1 bedroom worth about £100k. I don't take any rent or other payment. It was gifted to me years ago when my father died. There's no mortgage.

When she dies I don't want to keep the property, and as I understand it I'll be hammered for capital gains.

So in order to protect this, I have a vague plan of buying somewhere abroad and using the sale proceeds as capital. If I'm right this is fine if I was buying another UK property (within 180 days) but is the same true of property outside the UK?

Any help much appreciated.

BoGoF

That wont work. Doesnt matter what you do with the money, the sale will be liable to cgt

BoGoF

Can you quote the legislation for this or a link to show?

Keep_pedalling

https://www.gov.uk/capital-gains-tax

I don't know where you get that 180 day stuff from it is nonsense. Once you have disposed of the property your CGT liability kicks in regardless of what you do with the proceeds.

Do you know what the value of the house was when you inherited it?

cornwell74

OK my mistake, looks like the 180 days thing relates the the US.

Regardless of what you do with the proceeds? Charity donation?

So if that's the case that the CGT can't be avoided, best to avoid it being a gain in the first place?

BoGoF

Any CGT will be on the gain since you inherited it. You can alao deduct selling costs and you have your annual exempt amount.

Keep_pedalling

cornwell74 wrote: »

OK my mistake, looks like the 180 days thing relates the the US.

Regardless of what you do with the proceeds? Charity donation?

So if that's the case that the CGT can't be avoided, best to avoid it being a gain in the first place?

That is just plain idiotic. If for example you had a gain of 30,300 you would pay tax on £20,000 of that gain, at somewhere between 18 & 28% depending on your income, so as a worse case scenario your net gain would be £24,700, with HMRC getting £5,600. You however would seem would be happy to not have nearly £25k of unearned income in your pocket just so HMRC get nothing as well.

Tom99

If you owned it before April 1998 you might qualify for dependant relative relief but I am not sure.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65550

Keep_pedalling

The other complication here is that the OP says it was gifted to him after his father died, but does not say who did the gifting. If it was his mother then that rules out dependant relative relief, it would also mean the house was still part of her estate for IHT purposes, and is likely to be included in any essesment for residencial care costs should they ever be needed.

cornwell74

What an oddly aggressive tone there is in this forum.

Nomatter. What I meant by eliminating any gain; would be is it possible to mortgage the property on an interest-only basis, put the processed into a tax-free savings product, offsetting some or all of the interest, then when the time came to sell would the tax burden only apply on the gain net of the mortgage debt. I can't easily tell from the literature but it would seem that the gain isn't net of debt?

If I extend the property and increase the value, are these costs deductible?

Also reading through it would make sense to gift it to my wife, who has no income, rather than keeping it in my name as I pay additional rate.

Thanks Tom99, but that doesn't apply in this case. The gift was made in 2005.

KP the gift was made by my mother at the time as the flat passed to her when my father died. My understanding is that the 7-year rule applies.

Keep_pedalling

cornwell74 wrote: »

What an oddly aggressive tone there is in this forum.

Nomatter. What I meant by eliminating any gain; would be is it possible to mortgage the property on an interest-only basis, put the processed into a tax-free savings product, offsetting some or all of the interest, then when the time came to sell would the tax burden only apply on the gain net of the mortgage debt. I can't easily tell from the literature but it would seem that the gain isn't net of debt?

If I extend the property and increase the value, are these costs deductible?

Also reading through it would make sense to gift it to my wife, who has no income, rather than keeping it in my name as I pay additional rate.

Thanks Tom99, but that doesn't apply in this case. The gift was made in 2005.

KP the gift was made by my mother at the time as the flat passed to her when my father died. My understanding is that the 7-year rule applies.

No the 7 year rule does not apply as this is classed as a gift with reservation. To be classed as an outright gift she would have had to be paying you full market rent. The LA would almost certainly treat it as deliberate deprivation of assets as well, should your mother need residencial care in the future as well.

Adding things like extensions would be deductible, but I don't see how that helps as The amount you spend is unlikely to increase the value above the amount you spend on it.

It would probable be a mistake to transfer the whole house to your wife. Transferring half of it would give you 2 lots annual exemptions giving you £22,600 of tax free gains in total. Your share of any gain made above that would be taxed at 28% and your wife's at 18%

There is a danger here however if you ended up in a messy divorce or you died before your mother, your mother could find herself loosing her home.