Cgt on gifted property

barry1234

We are in the process of recieving our inheritance early. The old derelict family home is being split into 3 plots and gifted to 3 children. The property has lay derelict due to being uninhabitable for 25 years and is being gifted early so the children can do something with it while we’re young enough and able rather than waiting to inherit it. It was recently valued at 100k and was worth 40k when it was inherited by father 32 years ago. We have now been told he will have to pay cgt even tho no money is changing hands and if we waited to inherit it there would be no inheritance tax. Is this correct or is there a way round it? Do we get billed for it automatically or do we need to fill in forms? If we do nothing might it be overlooked?

Any info welcome. Thanks

getmore4less

The gift giver needs to pay the tax as it is them that is disposing of the property.

flower77g

Might be worth instead asking whether you could have a 125 year lease on the plot of land at nominal annual rent of £1; wait to inherit the freehold. This may reduce the CGT as well.

00ec25

your father is disposing of an asset he owns

he is disposing of it to "connected persons"

therefore your father must pay CGT on the gain from the value when he acquired it to the value when he disposed of it. The disposal value being its current market value. The fact no money changes hands is exactly why these rules exist, because it is being done to pass an early inheritance down the family to avoid inheritance tax, therefore CGT is being imposed instead.

As you say, if you waited until he died, his estate may (or may not) have Inheritance tax to pay depending on what his estate is worth when he dies.

G_M

barry1234 wrote: »

....... It was recently valued at 100k and was worth 40k when it was inherited by father 32 years ago. We have now been told he will have to pay cgt even tho no money is changing hands
correct

and if we waited to inherit it there would be no inheritance tax.

That depends on the total value of your father's Estate - not just the value of this property

Is this correct or is there a way round it?

Leave the property in your father's name.
Helphim to 'do something about it' now (whether that means spending the weekends digging or lending him some capital - but either way, you were planning on 'doing something' if he gifted it to you so there's no difference other than the timing of the transfer of ownership.

Do we get billed for it automatically

No.
And the capital gains liability is his, not yours.

or do we need to fill in forms?

Yes, HE needs to declare the Capital Gain.

If we do nothing might it be overlooked?
It might. Just as it might be overlooked when I drive at 90 mph. But he'd be breaking the law just like me......

......................................................................................

pphillips

Your father needs to declare the increase in value since he inherited it in a self assessment tax return less any costs of acquisition, disposal, improvements to the property. He can also deduct his CGT annual allowance of £12,000 (from 6th April 2019) and if he is married he could gift half the property to his spouse (tax free) first to in effect double the CGT annual allowance.

There is a useful calculator here https://www.gov.uk/tax-sell-property/work-out-your-gain

It's important to understand that any gain for to CGT purposes would be reset on his death, so if there would be no inheritance tax to pay then a lifetime gift would usually be poor tax planning.

barry1234

The reason for it needing to be in our own names is that’s the only way we can get a self build mortgage.

Even if we could leave it in his name and fund the build of our houses there then in his name an the 100k plot becomes 750k+ worth of property that we would need to pay inheritance tax on? whereas now his estate is not going to be over the inheritance tax threshold

He lived in it years ago as his main residence but has no proof as who keeps bills etc for 30-40 years. Would there be council tax records or some such that can be looked up or do you even need to prove it was a main residence to claim partial relief? Also there was a lot of building work done to try an stop the houses demise but again no record, can that be offset against the gain?
Also is it fairly straight forward forms to fill in or will an accountant be needed?

Again thanks for any info or insites

G_M

Where does he live? He must have been living somewhere for the last 40 years so clearly that is his main residence. Hard to caim otherwise I'd've thought!

You can offset the building work against the gain. You don't have to submit evidence..... unless HMRC come back and ask for it. But in that case you should be able to demonstrate what was done?

The forms are relatively straightforwrd if you are literate, though there may be ways a accountant could advise that would reduce the liability.

Take a look at the rules, and the forms, yourself to decide the best way o go and who is best to do it.


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

Report your gain and pay straight away

You can use the ‘real time’ Capital Gains Tax service if you’re a UK resident. You’ll need a Government Gateway user ID and password. If you do not have a user ID, you can create one when you report and pay.

Keep_pedalling

Why an earth would anyone want to inherit a derelict home? Better to sell up pay the tax and split what remains with the children.

getmore4less

Keep_pedalling wrote: »

Why an earth would anyone want to inherit a derelict home? Better to sell up pay the tax and split what remains with the children.

The clue was self build.

The land has value if you want to build a house.

getmore4less

barry1234 wrote: »

The reason for it needing to be in our own names is that’s the only way we can get a self build mortgage.

Even if we could leave it in his name and fund the build of our houses there then in his name an the 100k plot becomes 750k+ worth of property that we would need to pay inheritance tax on? whereas now his estate is not going to be over the inheritance tax threshold

He lived in it years ago as his main residence but has no proof as who keeps bills etc for 30-40 years. Would there be council tax records or some such that can be looked up or do you even need to prove it was a main residence to claim partial relief? Also there was a lot of building work done to try an stop the houses demise but again no record, can that be offset against the gain?
Also is it fairly straight forward forms to fill in or will an accountant be needed?

Again thanks for any info or insites

...
The old derelict family home is being split into 3 plots and gifted to 3 children
...
The property has lay derelict due to being uninhabitable for 25 years
...
It was recently valued at 100k and was worth 40k when it was inherited by father 32 years ago
...

Unless he had part ownership before inheriting occupation years would only count from when he owned it 32 years ago.

If he occupied at that time when did he move out?

If it was 25 years ago he has around 7 years of 32 years to mitigate some of the CGT.


Not sure if it would get caught by connected transactions but could he split the land into the plots and offload one a year.