Capital Gains??

StartingAgainKayla70

Apologies if this is in the wrong place.

I need to know in lamans terms if I have to pay capital gains. Here is my story.

My mum gave me and my brother a house, she transferred the deeds into our names.

My brother is going to buy me out, therefore having the deeds transferred into his name.

This is the bit where I have been told I will have to pay capital gains, can anyone enlighten me.

Thanks and I will appreciate any feedback.

Fran

Hi,

I've moved this to the "House buying & selling" board as it seems more relevant.

Doozergirl

Is it the only house you own?

StartingAgainKayla70

Doozergirl wrote:

Is it the only house you own?

Hi ya

No, its not the only house I own.

I have a house with my hubby with a mortgage.

The house me and my brother own has no mortgage and that is the one I am confused about.

divadee

is your name on the mortgage thatyou own with hubby or is it just in his name?


If it was in his name then i think you would be ok. if you own it as well then capital gains tax would be payable. Give the inland revenue office a ring (not as scary as it sounds!!) they are normally a great help, and will roughly let you know what you will have to pay.

Ian_W

CGT is an AWEFULLY complicated tax and you might better posting on the tax forum where some very helpful accountants lurk and offer free advice.

Some basics are:
Your principal private residence [PPR] is exempt, but in this case that doesn't appear to apply, unless you did live in the property at some time. If you've two properties you can elect which is your PPR but if you did that in respect of the one you're selling you'd lose PPR status on the one you occupy with hubby - additionally the Customs & Revenue might enquire into the facts and establish the claim was factually incorrect. Not a good idea!

If, as it seems, it's not been your PPR then it seems to me likely that you may be liable for CGT. If the property was a gift, it presumably cost nothing, so the whole of the amount your brother is paying you is a gain. From that you can usually deduct certain expenses like, buying & selling costs/capital improvements to the property whilst you owned it, though you may only be able to deduct 50% as your brother would have paid half. If the property was rented whilst you owned there are, I believe, some reliefs claimable for that and then there is Taper relief which, for a non-business asset, I believe max's out at 25% after a certain period of ownership.

When you've taken all the different reliefs away you can also offset a personal allowance of [this tax year] £8,500 [double if your hubby wants to join in!] before arriving at the amount of taxable gain. Tax is then paid at the same rate you pay income tax.

Now that's pretty much the basics - I'm sure if I've forgotten anything or got something wrong someone will jump in and put me & you straight. If the BASICS are so complex, you can image how complex it gets when you go into details.

If the money you're getting from your brother is significant, you may be as well seeing an accountant and paying for some advice on what you can claim before you submit a return to the Revenue. There is no great rush to do that, it's got to be declared after the end of the tax year [by the following October I think] when the gain accrued.

Doozergirl

What he said, BUT the tax would be payable on the difference between the value of your share now (which may not neccessarily the price paid to you), minus it's value when you received it. Luckily, it's not the entire amount your brother pays you.

eg. your share of the house is 50%. The house was worth £200,000 when you received it, it's now worth £250,000.

£125,000 (value of your share now)
minus
£100,000 (value of your share then)
= £25,000

This is the amount you pay tax on, minus your allowances.

Ian_W

DoozerG is right I believe, my apologies, I didn't get my brain fully into gear!

Although it didn't cost you anything [presumed, as it's a gift] it's the value when given against the value when sold that is the gain - as explained above.

Pal

Taking this a step further: If the house was not your mother's primary residence when she gave it to you then she would have been liable for CGT when she gifted the property to you.

If it was her primary residence then there is no CGT for her to pay, but one wonders where she is living now? If she is still in the house or has gone into a home there are all sorts of issues about the avoidance of long-term care fees and the payment of income tax on notional market rents in those circumstances.

For the OP, CGT is potentially payable on any gain made between the market price at the date of the gift and the eventual sale price.

An interesting workaround (not sure if this is possible or legal - a solicitor would be able to advise): Sell your brother's half to him at a reduced price to reduce the potential capital gains tax, but get him to gift the balance of the purchase price to you as cash. Gifts are potentially tax free. The only potential tax is inheritance tax which would not be payable as long as your brother lives more than seven years after the date of the gift.

Doozergirl

Pal wrote:

An interesting workaround (not sure if this is possible or legal - a solicitor would be able to advise): Sell your brother's half to him at a reduced price to reduce the potential capital gains tax, but get him to gift the balance of the purchase price to you as cash.

My understanding is that you aren't allowed to do this. I should have explained it better, but that was the reason I said the value of your share and not necessarily the price paid for it. I think Her Majesty fully expects people to try this so creates a 'catch all'.

Richie(UK)

Doozergirl wrote:

My understanding is that you aren't allowed to do this. I should have explained it better, but that was the reason I said the value of your share and not necessarily the price paid for it. I think Her Majesty fully expects people to try this so creates a 'catch all'.

Correct. The 'connected persons' legislation ensures that transfers between anybody connected for tax purposes are deemed to take place at market value (paying less than MV will not be effective for CGT purposes).

Edit : Links
Legislation
Connected persons