Capital gains tax , but what about income tax - sale of second property

Trifolium

My brother and I own a house which is a second property ( neither of us live in it) for us both, and are selling it this summer ( so in the 24-25 tax year). We will be buying a cheaper property after paying off the mortgage. It is owned by us, not in a business or trust. We are currently working through the guidance in terms of what costs we can offset ( we have extended the house etc)  to reduce CGT liability but a few differences in our understanding have cropped up, so hoping someone can clarify! Like everyone just trying to pay what we will owe, but cut if possible. Current estimate is that the net gain will be about £280k.

1. My brother is a higher rate tax payer and currently I only have about £1,500 income per annum (from dividends) as we live off my husband's pension. Can we still claims two lots of CGT allowance in full?
2. If I did draw a pension income of say £25k per annum does that change the answer to question 1?
3. Apologies now for a numpty question, but.... With the remaining 'income' from the sale does this get included for income tax calculations and if so before or after the cost of buying the new property?
4. Would it benefit our children ( I have two ( adults) and my brother has one ( still in secondary school) long term in terms of inheritance tax if the new house was bought in their names?

Thanks in advance for any clarity :-)

[Deleted User]

1) If you mean you and your brother, you each will have one CGT  allowance each. 

2) No. The CGT allowance is an entirely separate allowance. You will, however, pay more CGT at the higher rate of 24%.

3) Depends on whether you withdraw the pension as to the amount payable. CGT must reported and paid within 60 days of completion. 

https://www.gov.uk/report-and-pay-your-capital-gains-tax

It must also be included in tax returns for 2024/25 - to be completed filed after 6th April 2025 and before 31st January 2026. 

4) From an inheritance tax point of view there may be some advantages but I am not an expert in this area. Remember though that your children will no longer be first time buyers when they come to buy a property in the future. 

Given the questions and the large gain I would definitely recommend engaging an accountant/ tax adviser for this one-off transaction. It could save you a lot more in the long run. 

silvercar

I wonder whether it is worth selling this property and buying another if doing so will mean a high CGT bill. If you are set on this, it may be worth considering you and your brother buying separately, so as to prevent  inheritance complications for the next generation.

Grumpy_chap

Trifolium said:

1. Would it benefit our children ( I have two ( adults) and my brother has one ( still in secondary school) long term in terms of inheritance tax if the new house was bought in their names?

DOA (Deprivation Of Assets) may apply if OP or brother need future care.

The income from the new house will then go to the children.  Is that what is intended?  Or the income goes to the OP & brother, in which case GWR (Gift With Reservation) likely applies so negates the value being excluded from Estate for IHT purposes.

The children will carry the liabilities of being Landlord.  Are they aware and ready for that?

How will the children (two siblings plus one cousin) exit this property ownership?  They are almost certainly likely to want to realise the capital at different times for different purposes (or create a follow-on challenge for whoever manages their Estates if that arrives first).

The children will lose first time buyer status assuming they aspire to own their own homes in the future.

The children will incur the stamp duty (SDLT) surcharge when buying their own homes.

The equity in the house will be considered if the children ever need to claim benefits in the future.

If any of the children divorce of relationship breakdown in the future, their respective share of the equity will be considered a marital asset.  An ex-spouse may force sale.

The children will incur CGT on disposal of the property.

mybestattempt

I think others have covered almost everything except what I think you are asking in 3.

I think your question here is about the whole proceeds the sale?

If so, there is no income tax.

For example the proceeds of the sale were £500k and the capital gains £280k there is no income tax on the difference of £220k.

I would add that I agree a new house for the children may cause difficulties in the future and I understand a minor child cannot own property which may preclude your brother's child form owning a share at the moment.

mybestattempt

[Deleted User] said:

mybestattempt said:

I understand a minor child cannot own property which may preclude your brother's child form owning a share at the moment.

Minor point (see what I did?) but a child can beneficially own property, just not be registered as the legal owner and so you'd need a nominee.

Trifolium said:

Would it benefit our children ( I have two ( adults) and my brother has one ( still in secondary school) long term in terms of inheritance tax if the new house was bought in their names?

Any rental income received by your brother's child (while unmarried and under 18) would be taxed on your brother rather than your child.

Thanks, I wasn't entirely sure but got it now.