Second Property / Capital Gains

pmoney

Hi all, looking for some advice please.

My mother and father purchased a second property in which my sister has been living.

They would like if possible to minimise / avoid paying Capital Gains tax if they sale this property.

Is there any way to do this?

One thought was if my mother lived there with my sister for a certain length of time..?

Thanks in advance.

Paul

seven-day-weekend

I think it has to officially be your main residence i.e. bills going there in your name etc.

However, don't forget there are certain costs/allowances you can set against the capital gain, plus if the place is jointly owned each owner will have a CG allowance of (I think) around £10k.

There may not be too much to pay anyway.

Someone will be around soon who knows more than me.

silvercar

A married couple can have only one principal private residence between them.

If they want at some time in the future to declare the second property to be their PPR, they need to make an election within 2 years of owning both that their main home is their PPR; at a later date they are able to make a different declaration. At the time of the declaration both properties need to be available to them. This is often used when people have a city home and a country dwelling.

silvercar

If you want to read a short thread on the dangers of putting property in other's names:

http://forums.moneysavingexpert.com/showthread.html?p=6883368#post6883368

Better to tackle the CGT bill than risk losing everything!

Remember your parents have a CGT allowance (currently 9,200) each even if they share a PPR.

pmoney

Firstly, thanks guys for the advice - it is much appreciated.

Showing my ignorance here but could someone please explain how the CGT allowance would work in this case. Does the allowance mean that they are exempt from paying the first £9,200 (each) that they would owe from the sale?

Does anyone have a rough idea on how much the CGT would be on the sale of the property? I think it would sale for roughly 250K.

Thanks again!

Paul

silvercar

Every person has a CGT allowance of £9,200. So if a married couple sell a property on which they have made a £30,000 gain, they are deemed to have made £15,000 each, so would include this on their tax return, less the 9,200 allowance and each pay tax at their marginal rate on 5,800.

CGT is payable on the gain ie sale price less purchase price less costs. Costs would include buying and selling legal fees, estate agents fees, surveys, mortgage arrangement fees and any costs of improvements (but not repairs / maintenance) to the property.

seven-day-weekend

pmoney wrote: »

Firstly, thanks guys for the advice - it is much appreciated.

Showing my ignorance here but could someone please explain how the CGT allowance would work in this case. Does the allowance mean that they are exempt from paying the first £9,200 (each) that they would owe from the sale?

Does anyone have a rough idea on how much the CGT would be on the sale of the property? I think it would sale for roughly 250K.

Thanks again!

Paul

I can't do the Maths myself, but people will need to know:

When they bought the property
Purchase Price
How much the buying fees were
Whether it is in joint names
How much has been spent on repairs and maintenance
Fees for selling
Date of selling
Price of selling
Whether it has ever been the owners'main home and for how long.

(I know you might have to estimate some of these figures but I'm sure someone will be able to give you a rough idea).

pmoney

Okay if anyone has an idea on the CGT on a property

bought for - £215K 14 months ago
approx £1K spent on fees for the purchase
£2K spent on property improvements
joint ownership between a married couple
selling for £260 the beginning of next year
never having been the owners main home but with their daughter living there paying no rent but covering all bills

that would be great!

Thanks again,

Paul

silvercar

Lets assume estate agent and solicitor selling fees total 3k.

Profit= 260-215=45. costs= 12+3=6. total gain=45-6=39k

if they sell Jan to March 2008:

Each has gain of 39/2=19.5. less CGT allowance of 9.2=10.3. This 10.3 (each will be taxed at their marginal rate, so for a higher rate tax payer @40% ie £4,120. Total tax for 2 higher rate payers = £8,240. For one higher rate payer and one ordinary rate = 4,120+2,060=6,180. (non tax payers will pay a small bit at 10% and the remainder at 20%.

If they sell in the next tax year ie after 6 April 2008 and the tax changes announced in the pre-budget become law then:

Each has gain of 39/2=19.5. less CGT allowance of 9.2=10.3. charged at the CGT flat rate of 18%=£1,854 each ie £3,708 in total.

So it would be cheaper (all other things like house prices being equal) to wait until after 5 April before selling. You would also gain further in that the tax would not become payable until the Jan after the end of the tax year. So in the tax year 2008/09 the tax would be due by 31 January 2010.

BTW it is the day of exchange that is crucial not the completion date.

pmoney

Thanks very much Silvercar and everyone else!

I have a better idea now of whats what and can pass the info on.

Now to find someone who knows whats going to happen with property prices - only messing!!

Cheers, Paul

pmoney

Actually, one more thing...Silvercar, if you will, in your post above you say:

'If they want at some time in the future to declare the second property to be their PPR, they need to make an election within 2 years of owning both that their main home is their PPR; at a later date they are able to make a different declaration. At the time of the declaration both properties need to be available to them. This is often used when people have a city home and a country dwelling.'

Is this a simple method to avoid paying the CGT (used by those whom have two homes) or is it complicated / likely to be investigated by the Taxman?

Paul