CGT on gifts

Thesleuth

A friend of mine bought two flats which he then gave to a girlfriend 18 years ago, in an attempt to exclude them as assets in his divorce proceedings. When they split up two years later, the flats were forgotten, and now, after my pal suffered a near-critical health scare, the ex-girlfriend has agreed to return ownership to him. The value of the flats was originally £38,000, but are now worth around £200,000. Is there any liability for CGT on their return, as no money will change hands?

foxy-stoat

CGT will be charged on the current value.  No SDLT will be payable though.

[Deleted User]

Thesleuth said:

A friend of mine bought two flats which he then gave to a girlfriend 18 years ago, in an attempt to exclude them as assets in his divorce proceedings. When they split up two years later, the flats were forgotten, and now, after my pal suffered a near-critical health scare, the ex-girlfriend has agreed to return ownership to him. The value of the flats was originally £38,000, but are now worth around £200,000. Is there any liability for CGT on their return, as no money will change hands?

I think that even though the ex-partner isn't a connected person in the eyes of HMRC, market value will still be applied when the ex-partner disposes of the properties because I don't think an outright gift can be considered an open market bargain at arm's length, regardless of whether the parties concerned are connected or not.  The ex-partner could try to claim that she was never the beneficial owner but as this arrangement was put in place to hide assets during divorce proceedings I think she'd be on a hiding to nothing.  I don't suppose either property has been the ex-partner's primary residence for the whole, or most of the time she's owned it?

xylophone

Were the flats just left empty during the eighteen years that the girlfriend owned them?
Or were they rented out? If so, who received the rent? Has it been declared to HMRC?
It seems quite clear that the properties were gifted to the girlfriend - there is no indication of any paperwork etc to indicate that she was merely a nominee.
If she was merely a nominee, then the flats would still have have been the assets of the divorcing boyfriend and therefore would have been taken into account in any divorce settlement.
As far as I can see, the girlfriend is going to have to pay the CGT.

Thesleuth

Thanks everyone. I'll pass the bad news on. My friend will be delighted, as he's promised to cover all costs!! .I keep telling him "Oh, what a tangled web we weave, when we practise to deceive"!