Capital Gains Tax query

Gizzygogga

Hello,

I hope someone can help me with a question regarding Capital Gains Tax.

Background:

My Mum bought a house 20+ years ago and lived there as her primary residence. She then met her now husband and moved in with him. Her house was retained and she let it to family members for nominal rent - her husband kept his house in his own name and they agreed that they would keep their houses separate for financial reasons. As we all know as she lives with her husband that house is classed as her primary residence, she is now looking at selling her own house and in the near future he will sell his for them to buy one property together. She is aware she will need to pay CGT on the sale of her house however I wanted to check if there was any way around this.

If her husband sold his house and they moved into her house (note that he has no association with her house, he never lived there has not been named on any bills etc) would they, after a certain period of time, be able to then sell her house on without paying any CGT? Also would he have to pay CGT on the sale of his as she lives there albeit she has no financial claim as such as it is regitersted at Land Registry in his sole name only.

The rent charged to the family member has been very small so she hasn't made a profit from this and it has been legitimately reported for tax purposes so she has paid tax.

The long and short of it is the house was retained firstly in case her new relationship broke down and more recently as a back up plan for me and my siblings should we need it. As the house was purchased before the property prices went silly the value of it has increased a lot however we all know this is representative of the market in general so when buying and selling in the same market it won't be as if she has made a massive profit.

My mums house is now on the market but she is worrying that if it doesn't sell prior to April 2020 with the changes in CGT that she will be faced with an even larger bill. So I am looking for any ways she could protect her investment.

Congratulations if you have reached the end of this and thanks in advance of any advice 😊

Piiiinksocks

she Will be able to take a proportion of the gain as PPR (principal private residency) relief, and there is also the possibility of letting a relief. I know the tax is changing on this I would advise speaking to an accountant and getting the right answer. She will also get a capital gains tax free allowance extra to her normal income tax allowance so it may be very minimal tax - you need to give numbers to quantify (earnings, house price when purchased, value now, any substantial work on the property, number of months she lived in it as PPR, number of months let), but you really do need proper advice if it’s looking like there is a bill.

Gizzygogga

Thank you. She uses an accountant for the tax return she files for the rent she was receiving. She asked advice before and was billed for 5 minutes general information so I'm trying to find out what I can before she pays the accountant for more advice. Thanks for the reply 😊

Piiiinksocks

Hopefully the information I’ve given you will give you some avenues to look at then. It’s not a complex query, but I would have expected the accountant would only charge for doing the work (which is necessary for the tax return when the property is sold...). I used to be an accountant in practice, and I know I never would have charged an existing client extra for a 5 minute chat on non specific calculations!!

Gizzygogga

I was surprised too. She literally just gave general advice and then billed for it on top of the annual charge for sorting the tax payment on the rent! That's why I'm on a mission to find out as much as I can, problem is online (even when you search UK advice) you end up with lots of information from America 🙄 Really appreciate your advice.

00ec25

BEFORE APRIL 2020
she can claim PRR and LR to reduce the taxable gain
she will of course have her CGT allowance on top as well

AFTER APRIL 2020
LR is abolished, so the taxable gain would be up to £40,000 higher since LR is capped at 40k and therefore, for a property owned for so long, there is a reasonable chance that her LR claim would be restricted to that anyway.
she will still get her CGT allowance on top

see this for mechanics of the calculation
https://forums.moneysavingexpert.com/showpost.php?p=73621764&postcount=2


please understand, CGT is payable at 18% and/or 28% on the taxable gain, if the taxable gain is small then the tax payable will be even smaller. People lose sight of the fact tax is a % and don't understand it is payable on the NET taxable gain, not the gross amount

as for the rest of your opening post, your ideas will land her and him in trouble. Stick with the law, not DIY attempts at tax evasion.
Why so many people think that you get total exemption for a property by living in it for 5 minutes after or before owning for 50 years in total is a complete mystery.

Gizzygogga

Thanks for the information. They kept separate properties to ensure that respective inheritances weren't compromised if the relationship didn't work out hence renting it to family for nominal rent. Despite living together and now married where they live is still classed as his home. It just seems a shame had they sold their houses before living together neither of them would have had to pay any cgt. So not tax avoidance, more investigating if there are any loopholes. Also had she been told this sooner I genuinely think she would have sold the property and invested the funds until they were in a position to buy a joint home. Thanks again for the advice it is appreciated.

00ec25

Gizzygogga wrote: »

Thanks for the information. They kept separate properties to ensure that respective inheritances weren't compromised if the relationship didn't work out

reasonable and an obvious tax planning measure

Gizzygogga wrote: »

hence renting it to family for nominal rent.

nothing wrong with that as long as they have declared the correct rent and (I assume) claimed a loss as a result (Profit = OK)

Gizzygogga wrote: »

Despite living together and now married

excellent, they show moral standards

Gizzygogga wrote: »

where they live is still classed as his home.

correct

Gizzygogga wrote: »

It just seems a shame had they sold their houses before living together neither of them would have had to pay any cgt.

true, they were perfectly free to take (pay for) tax advice before reaching a decision to move in together

Gizzygogga wrote: »

So not tax avoidance,

no, your OP was all about evasion, not avoidance

Gizzygogga wrote: »

more investigating if there are any loopholes. Also had she been told this sooner I genuinely think she would have sold the property and invested the funds until they were in a position to buy a joint home.

true, they were perfectly free to take (pay for) tax advice, at which point they would have been better informed than they are in retrospect