CGT on property

Steveswift

Hi,

I wonder if any of you guys can help direct me to the best path. I have started to do research and can’t find anything that fits my particular circumstances.

My question is regarding CGT on a rented property I own.
The first thing is I am not trying to avoid paying any tax I am due but likewise I don’t want to pay any more than I have too, so if my post comes across like that I apologise in advance.

Backstory.

In approximately 2002 my Sil got divorced and I bought a property in her area with the view to her renting it from me. The property was 115k she put down 10k and I put down 5k (15%) I got an IO mortgage on the remainder at ½% above base rate. This has approx. 7 years left to run. Value now 180-200K
The plan was when the mortgage is due she would move out unless plans changed in the interim (New hubby or whatever) we agreed that she owes 10% of the property and the remainder is mine.

She only paid whatever the mortgage was at the time; initially this was about £600 a month a little higher than the local rent at that time but not so far off. Over the year because of the Mortgage I got she has pays approx. £150 a month rent for a lot of years.
In May she moves out and bought a property in Egypt (Don’t ask), purchased with all the money she has saved in Rent which is a decent chunk. I should say as part of the deal she maintained and paid any bills. Although I have paid out 2k approx. for new gutters.

The house is worth about 180k as it and probably 200k if I spend 5k on it and do it up. I could also rent it out for full market rent of £700/850 a month after say a 2k tidy up.
I also turn 60 in May and have agreed with work to drop down to 50% hours so effectively semi – retiring.
So looking at the CGT it appears that I will owe 17-25 K pending on end figures and the like. Which obvious I would wish to reduce if at all possible.

My questions are.

• Can I use my wives CGT allowance I understand that she needs to be on the mortgage. Is it worth renting out for a few more years and in that time transfer half ownership to her?
• Can I in any way use my SIL CFT allowance.
• I have checked but can’t find an exact answer, but can I not simply reinvest the money I make in another rental property, I have been considering buying one of these beach huts in Whitstable (approx. 40K) anyway, so wonder if I cannot kill 2 birds with one stone?
• Would I benefit from specific CGT financial advisor, what could they tell me that you guys can’t?
• I have no need for the cash at present so happy to consider all options.



I hope all that makes some sense but happy to answer any questions

00ec25

lots of issues, no simple immediate pathway

you are sole legal owner?
but she contributed a lump sum towards purchase cost
there is no declaration of trust?
you took all the income in your sole name
how/when will she get her 10K back?

you cannot escape CGT entirely, but you may be able to reduce it a bit if you establish she has a beneficial ownership as well as you do


you probably have a position which involves more than can be dealt with in a forum and should be paying a CGT accountant for proper advice

Steveswift

Thanks for taking the time to read it.

Yes sole legal owner.

I will give her the 10K the moment she asks for it from existing funds.

No legal paperwork all done on trust and for 17 years seems to working out ok, should get to the May dates in the same vein. She is highly grateful for how things have worked out.

She will also receive 10% of the profit when all the dust has settled with the tax man and the like.

Regards

Steve

00ec25

Steveswift wrote: »

Thanks for taking the time to read it.

Yes sole legal owner.

I will give her the 10K the moment she asks for it from existing funds.She will also receive 10% of the profit when all the dust has settled with the tax man and the like.

so she is undoubtedly a beneficial owner

CGT is based on beneficial, not legal, ownership and therefore that has huge implications for what can be done

given what you write, there are ways to reduce your exposure, but not ones to cover in a few lines on a forum

seek professional advice

Steveswift

Thanks again. I will seek professional advice.

I suspect one of the first things i have to do it to get my wife nominated as part owner of my share, that way i should be able to use her CGT allowance.

When i sell/rent the house out i will need to refurbish it and spend about 10k on it. This would come off my CGT bill, so i should spend as much as possible on this ?

Regards


Steve

00ec25

Steveswift wrote: »

When i sell/rent the house out i will need to refurbish it and spend about 10k on it. This would come off my CGT bill, so i should spend as much as possible on this ?

only capital improvements are allowed as deductions against CGT

many people have no idea of the difference between a capital cost and a revenue cost, partly in "refurbishments" since that mostly involves what is in reality renewing what was already there and so is revenue expenditure
again bread and butter advice work for an accountant

see here for background:
https://www.gov.uk/hmrc-internal-manuals/property-income-manual/pim2030

adding the wife (assuming you are legally married) is tax free, but must be done well before any suggestion of selling up or it will fail under settlements legislation. Ideally put her on when she and you both have to split and pay tax on rental income, that way you prove the transfer was not simply to avoid CGT

Steveswift

adding the wife (assuming you are legally married) is tax free, but must be done well before any suggestion of selling up or it will fail under settlements legislation. Ideally put her on when she and you both have to split and pay tax on rental income, that way you prove the transfer was not simply to avoid CGT[/QUOTE]




TY again