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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
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Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I gave my mother £12,000 to buy her own Local Authority house

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I gave my mother £12,000 to buy her own Local Authority house in Scotland in Oct 1989. She has lived there until now and paid no rent. She transferred the house to my name in Jan 1995 for £1. From 1986 to 2007 I was serving in the RAF and living in accommodation provided by them: single accommodation from 1986 to 1991, then married accommodation from 1991 to 2007. I owned no other property during that period. If I sell the house now would I be liable for Capital gains tax? Would my liability change if I let the property for 2-3 years?
Submitted: 3 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 3 years ago.

Hello and welcome to the site. Thank you for your question.

Please advise

Have you ever lived in the property yourself or has it been your mother who has resided in the property at all times to date?

What is the property worth now if you were to sell it?

What was the property worth when it was transferred to you for £1?


Is the property in your name only or joint names with your wife?

Many thanks

Customer: replied 3 years ago.

Hi,


I was born in the property and lived there for 23 years until I joined the RAF in 1985.


I think it could be worth up to £100,000


I guess in 1995 it would have been worth £40-£60,000.


At the moment it is only in my name.


D

Expert:  taxadvisor.uk replied 3 years ago.

Thank you for your reply.

You were residing in the family property up to 1985 and the property was not in your name at the time.

In order to qualify for private residence relief the property had to be owned by you and you should have made it your only or main residence at some point during the period of ownership. Your mother has resided in the property at all times and is still living in the same property albeit rent free. Based on these facts, the property would be deemed second home for you (although you don’t own any other property) and gain on disposal of it would be chargeable to capital gains tax, I’m afraid.

More information on private residence relief can be found on HS283 here

http://www.hmrc.gov.uk/helpsheets/hs283.pdf

For CGT purposes, your cost base would be the valuation at time of transfer to you in Jan 1995 and not £1. So your gain would be anything between £40,000-£60,000 depending on the valuation figure in 1995.

You could mitigate CGT by transferring 50% of the property to your wife and then sell it say in 3-6 months. This way you would be able to claim 2 lots of gains annual exemption against chargeable gain. If you were to consider this route, then you are best advised to transfer50% share before 5 Apr 2014 in the current tax year.

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.

taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4886
Experience: FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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