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Joshua
Joshua, Lawyer
Category: Property Law
Satisfied Customers: 25358
Experience:  LL.B (Hons), Higher Prof. Dip. Law & Practice
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I have bought a 1st floor flat in 2007,the flat was converted

Customer Question

I have bought a 1st floor flat in 2007,the flat was converted from a house originally, The previous owner sold down stairs in 1989 as a lease hold 999 years. He retained free hold when he sold the flat to me. Due to this nature that I can not get a good deal on remortgage for this flat. I am thinking to create a lease hold for the flat and create a 3rd party which will be my laughter's name to be a free hold. The free hold in my daughter's name I believe there is no value in the reality, but my convincer told me that he need me to ask an accountant about this activity because that may involve the capital gain tax matter?
My question is, does this involve capital gain if I transfer the free hold to my daughter? and what do I have to do?
Thank you advance
Li
Submitted: 2 years ago.
Category: Property Law
Expert:  Tax Expert replied 2 years ago.
Hi Li

Thanks for your question

There will be a capital gain position arising, as you are in effect disposing of the property to a person other than your spouse.
This then will be established by the value at the date of transfer less the purchase value - which forms the initial gain.t
Then costs to buy and any capital improvements, such as new kitchen or bathroom can be deducted.
The amount left over is then considered for any tax reliefs, such as private residence relief and private lettings relief. And these are only considered if this property has ever been your main residence, and also if you then went out to let it out (and declared all rental income to HMRC)

Once the tax reliefs are considered then the first £11,100 is exempt from capital gains, and any remaining amount is liable to capital gains tax.
There are two rates of capital gains tax 18% and 28%
If your annual income is in excess of £42,475, which would mean all your basic rate band has been used, then the gain is charged at 28%. If you annual income is less than £42,475 then an amount equal to the unused basic rate band, charges that bit of the gain at 18%, and any remaining gain at 28%

You should alert HMRC when the transfer takes place, they will then arrange to issue you with a self assessment tax return at the tax year end, to declare this transfer, and to calculate the capital gain tax you owe.

Thanks

Sam




Customer: replied 2 years ago.

Hi Sam


Thanks for the answer but I am not sure that you have understand my situation-I do not transfer this flat/ property to my daughter but only use her name to create a free hold, I still own the flat as a lease hold, and down stairs owned by others. So the free hold do not gaining finically. Also it is not my main residence property.


Thanks


Li

Expert:  Tax Expert replied 2 years ago.
Hi Li

Thanks for your response and the clarification of the situation.

I am no legal expert but I cannot see how you can create a leasehold for a third party as this just creates a leasehold within a leasehold, the free hold will still be owned by the original owner.

I will transfer your question to the UK property law section, as this is where this question belongs.

Thanks

Sam



Customer: replied 2 years ago.

thanks anyway Smile

Expert:  Tax Expert replied 2 years ago.
Hi
You are welcome,

One of the moderators will arrange for the transfer of the question, so I am sure it will not be too long before you get a response

Thanks

Sam
Expert:  Joshua replied 2 years ago.
Hello and thank you for your question. I will be very pleased to assist you. I'm a practicing lawyer in England with over 10 years experience.

May I clarify that the previous owner of your flat still retains the freehold and as such is the sole owner of the freehold interest for the building please?

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