CGT on flat I bought for my mother in 2000 to live in rent free

stevehamilton

Hi people , 
Long story short , I bought my mum a flat in a retirement development in 2000 for £80,000 with no mortgage . She lived there rent free until dementia got the better of her in 2015 after which she moved into a care home .  The flat was then rented out ( and still is currently ) . My question is ... as the flat was purchased with the sole intention of my mum living there securely and comfortably in her retirement , will I have to pay CGT on it up until 2015 when it was rented out ? The flat is now currently worth around £210,000 .
Many thanks , Steve .

xylophone

https://www.telegraph.co.uk/finance/property/advice/propertyclinic/7938823/The-tax-implications-of-buying-a-home-for-a-relative.html  Seems relevant.

There used to be a simple way of providing a home for Aunt Mildred without unpleasant tax consequences. "Dependent relative relief" meant that if you bought a property for an elderly (generally taken as 65 and over) or infirm relative, yours or your spouse's, and they lived rent-free, you did not have to pay CGT when it was sold.

This worked in the same way as principal private residence relief on your own home.

But the relief was withdrawn from April 6 1988. Now it can only be claimed if you sell a property that was occupied by a qualifying relative before that date. Relief will be due for the period of occupation plus the final 36 months of your ownership – even if the relative moved out years ago and the property has been let commercially ever since.

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65671

Mickey666

As I understand things, CGT is payable on the disposal of all assets but a private residence qualifies for 100% relief (PPR).

So, the big question here is who is the owner of the flat?  I'm guessing that it was bought in your name, in which case (assuming you didn't live there) it's not your private residence.  Therefore, when you sell it, it will be liable for CGT according to these rules: https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2017--2

According to chapter 7 in that guidance, CGT relief WAS available in this situation but only if the property had been acquired BEFORE the 1988 tax year.  As you bought the propoerty in 2000 that won't apply.

If you had gifted your mother the money to buy the flat, then it would have been her property and would qualify for PPR and no CGT would be payable in disposal.  Chapter 6 suggests that the final 18 months of ownership do not count towards CGT, so you'll save a little there, plus of course you have a personal annual CGT allowance of around £12k (I think).

As for her moving out in 2015 and the property being rented, I don't think that's particularly relevant in this case because neither types of occupancy will qualify for any CGT relief.

On the positive side, you have made a £130k gain.

EDIT: xylophone beat me to the post, and the final 36 months not counting towards CGT looks better!

Jeremy535897

The 36 month rule as quoted by Xylophone no longer exists.The manual is out of date. It was reduced to 18 months, then 9 months from 6 April 2020. Not that this matters, as because the property was never occupied as a main residence by the owner, there is no main residence relief due at all. Nor is there any lettings relief (which was abolished from 6 April 2020 anyway). The annual exemption is £12,300.

As this is a sale of residential property after 5 April 2020, a return will need to be made, and the tax paid, within 30 days of completion. See https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

macman

As above, you can't have 'bought it for her' (i.e gifted it to her) and allowed her to live in it 'rent-free'. Either she still owns it, or you do. Which is it?

stevehamilton

 It was purchased with a Declaration of Trust . I owned 90 per cent of the flat , mum owned 10 per cent ( she died earlier this year ) , I now own the flat outright . This was so in the event of me getting married / divorced , mum's accommodation would remain secure . I don't know if this makes any difference ?

stevehamilton

 It was purchased with a Declaration of Trust . I owned 90 per cent of the flat , mum owned 10 per cent ( she died earlier this year ) , I now own the flat outright . This was so in the event of me getting married / divorced , mum's accommodation would remain secure . I don't know if this makes any difference ?

AnotherJoe

I would  expect that means you can knock 10% off the capital gains made, the other 10% of the sale coming to you via her will (unless she left that to someone else?)

Dont forget to include off the buying and selling costs when doing the calculation.

xylophone

You owned as tenants -in - common?
Wouldn't you need to look at your 90% and the 10% that came to you by will separately for CGT purposes?

Normally where a property has been inherited and not sold for a period after inheritance, CGT is calculated on any increase in value between probate value and sale.

If you are about to sell now, the increase on the 10% is likely to be negligible?

xylophone

 xylophone beat me to the post, and the final 36 months not counting towards CGT looks better!

 see second link in post  above  - the concession is under S223 formerly 36 months but reduced after the article was written - see Jeremy's post.

See https://library.croneri.co.uk/cch_uk/btl/tcga92-it-s-223History

In s. 223(1), the words “9 months” substituted for the words “18 months” by FA 2020, s. 24(3)(a), with effect in relation to disposals made on or after 6 April 2020.

In s. 223(1), the words “18 months” substituted for the words “36 months” by FA 2014, s. 58(2)(a), with effect in relation to disposals made on or after 6 April 2014.

In s. 223(2)(a), the words “9 months” substituted for the words “18 months” by FA 2020, s. 24(3)(a), with effect in relation to disposals made on or after 6 April 2020.

In s. 223(2)(a), the words “18 months” substituted for the words “36 months” by FA 2014, s. 58(2)(a), with effect in relation to disposals made on or after 6 April 2014.

xylophone

The 36 month rule as quoted by Xylophone no longer exists.The manual is out of date. It was reduced to 18 months, then 9 months from 6 April 2020. Not that this matters, as because the property was never occupied as a main residence by the owner, there is no main residence relief due at all. 

Yes  - but the OP's original post was asking whether he qualified for "dependent relative relief" because he purchased a property for the rent free occupation of a dependent relative.It did indeed used to be the case (before 6/4/88) that the purchaser of such a property qualified for full CGT relief on sale as though for his own PPR  - if the relative ceased to occupy the property the 36 month concession (later reduced as you point out) applied.

See

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg65671

  The OP purchased the property  to which he refers in 2000 so no concession at all in respect of CGT could apply.