Selling second home tax advice

GSTAR

I am after some advice on selling a second home. But first I will give some background to explain, as this situation is a bit unusual.

I am a joint owner alongside my mum on a property which we are looking to sell. We bought the property 10 years ago and it was initially going to be bought solely by my mum. However as she was not working she was not able to get approval on the relatively small mortgage amount. Therefore I agreed to be on the mortgage, as my salary was enough to cover the monthly payments. At the time I was still living with mum at our old house and we then moved to the new house upon purchase. We have as of last year fully paid off the mortgage on this house.

A few years ago I purchased my own home with my wife. We are both joint owners on the home and there is an outstanding mortgage on it. This is my primary home.

What are the tax implications, if any likely to be when my mum's property sells, for the following two scenarios:

SCENARIO 1 - I don't receive any money from the sale (likely to be around £500k). The money would go in to mum's bank account and she will use most of this money to purchase another home.

SCENARIO 2 - I receive around £150k from the sale (assuming the money can be split unequally?). This money goes in to my bank account and I use it to purchase a buy to let home.

I appreciate this is something I would probably be better discussing with a qualified tax adviser, but nonetheless interested in getting some initial thoughts.

tlc678910

If you are a joint owner (I'm assuming 50/50 ownership) then on the sale of the property you would owe capital gains tax on (your share of) the increase in value from when you stopped living in the property to when it is sold. There is no tax to pay for increases in value while you lived in the property and there are capital gain allowances which might mean you have nothing to pay. You have an annual capital gains allowances and further allowances because you lived in this property as your home. If you search the forum for capital gains tax on selling a property that was your home there have been very thorough explanations of this. Your mum does not need to pay capital gains tax on her share if it was her main home throughout.

If you find you would owe capital gains tax I believe you would still owe this even if you gifted your share of the property to your mum rather than sold it (or gifted her the money as in scenario 1) So relating to your question above I think you would owe capital gains tax in both scenarios (or neither if you calculate you have nothing to pay)

Although you need to pay any capital gains tax due the only implication I can think of affecting how you split the money might be if you died within 7 years your share could form part of your inheritance tax allowance if you gifted mum your share. If you do have capital gains to pay I expect you would at least want to ask mum for that amount so you are not out of pocket.

Tlc

00ec25

GSTAR wrote: »

SCENARIO 1 - I don't receive any money from the sale (likely to be around £500k). The money would go in to mum's bank account and she will use most of this money to purchase another home

CGT is based on whether you are, or are not a beneficial owner. https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg11730

"Denying" you are the beneficial owner requires more than just not physically receiving the cash. In your case, relevant factors appear to be:
- you have been paying the mortgage for as long as it existed?
- the mortgage was in joint names?
- you lived in the property yourself until marriage (so benefited from it in non cash terms)

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg70230

There is no legal evidence to assert that you never intended to be a beneficial owner, ie you do not have a signed and dated deed/declaration of trust in which you state you have no financial interest at all in the property. Without such documentation it will be hard to disprove you are a beneficial owner (If such existed it would convert your mortgage payments into cash gifts to your mother in terms of your own IHT position, which obviously does not matter if you remain alive )

So, as beneficial owner you are liable to CGT

The property is going to be sold on the open market and "you" expect a 500k gross sales price. Mother will be exempt from CGT as it has always been her main home for as long as she has owned it

Your CGt will be based on what is your share of the property. Do you own as:
- joint tenants, so 50/50
or
- tenants in common, so possibly in unequal shares depending on whatever was recorded when you purchased

as for your CGT calculation, see post #2 in this thread (but ignore step 3 as the property was never let)
https://forums.moneysavingexpert.com/discussion/5764759/cgt-and-letting-relief

GSTAR wrote: »

SCENARIO 2 - I receive around £150k from the sale (assuming the money can be split unequally?). This money goes in to my bank account and I use it to purchase a buy to let home.

the proceeds can only be split unequally if you and mother own unequally. It is not simply a case of whose bank account does the cash end up in. Also who gets what proceeds does not control what CGT you'll pay if your beneficial share entitlement was greater than the cash you received, you'd be taxed on your entitlement in that case, not what you got in cash terms. That is a key part of tax, you can't reduce your own tax by artificially passing off the money as being someone else's

150/500 would require you to be a 30% owner. If that is the reality as documented in writing then fine, you get 150k and pay CGT on that sum

if you own more 30% you pay CGT on your share and if you then choose to give any excess over and above 150k to mother that is a gift from you to her against your own IHT position.

saajan_12

SALE: You pay Capital Gains Tax on your SHARE of a property you sell (after several certain allowances). Your share is based on the beneficial ownership from the outset, not on what bank account the money goes into. You could direct your solicitors to pay the money into someone else's account entirely - indeed solicitors directly pay lenders, who have a charge but not ownership. If the proceeds from your share goes into your mother's account, that's you gifting her £x after the fact.

Your beneficial ownership would be assumed to be 50/50 or reflect the legal ownership unless there was a compelling argument otherwise, such as:
* Deed of Trust
* Contributions to deposit / mortgage
* Who lived in property

Your CGT (if any) will depend on your % share of the gain in value. Then take the proportion of time you owned the property that you didn't live there excluding the last 18 months of ownership. Then assuming you didn't let it out, take off 11.6k for your annual allowance. That will give you your taxable gain, which you multiply by 18% for the portion of your gain under the higher rate tax threshold, and 28% for the portion above. If you provide the below info, we can work it through:
* date of purchase / sale
* dates you lived in the property
* purchase price
* sale price
* buying / selling costs (solicitors, agents, mortgage application fee)
* renovation costs for any major works
* annual income (eg salary)
* your % share

PURCHASE If you purchase a second property, regardless of where the money comes from, you'd be liable for higher rate stamp duty. Essentially this would be 3% higher than the usual stamp duty, for which there are many calculators.