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TonyTax
TonyTax, Tax Consultant
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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we want to gift 50% of our 2nd property (currently being rented)

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we want to gift 50% of our 2nd property (currently being rented) to our son. as this is a gift to help him (perhaps to get his own house one day).
Do we need to pay capital gains tax straight away (or can we pay CGT when the house is sold one day). We do not have the cash to pay CGT until the house is sold in future, but would like to help our son to be able to afford a mortgage when he has enough to buy his own
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

I'm afraid that if you gift a share of the property to your son, that share will be deemed to have been "sold" by you to your son at that time at the open market value with the consequent Capital Gains Tax implications. The only circumstance where the CGT can be delayed is if the gift is of a business asset which a let residential property is not unless it is a furnished holiday let. In that case, the CGT liability would effectively be transferred to the recipient of the business asset.

The gift would also be a potentially exempt transfer for Inheritance Tax purposes. So long as you each live for at least seven years after making the gift, your respective shares will not be included in the valuation of your estates for IHT purposes.

You should also look at the HMRC notes on property transfer and stamp duty here to see if you are affected by the rules.

Depending on the size of the gain you would be deemed to make on the gift of a half share of the property, you might consider gifting the 50% in smaller shares in different tax years to use the annual CGT exemption which is currently £11,000 per individual per tax year. However, this process of a gradual transfer of 50% of the property could be attacked by HMRC as aggressive tax avoidance under the series of transaction rules in which case they may seek to tax you on the gain as if the 50% had been given away in one tax year.

I realise this is not the answer that you wanted to read. Let me know if you have any further questions.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15755
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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Customer: replied 2 years ago.
B
Expert:  TonyTax replied 2 years ago.
You have typed a "B" and posted it in this dialogue. Was this a mistake?
Customer: replied 2 years ago.
Please anSwer my second question sent tou
Thanks
Expert:  TonyTax replied 2 years ago.
I cannot see a second question I'm afraid.
Customer: replied 2 years ago.
House was bought for £51,500, solicitors, stamp duty, and land registry £937, double glazing £1300, electrical rewiring £2990
Please could you let us know how much cgt we will have to pay if we proceed to gifting 50 percent to our son
Many thanhs
Expert:  TonyTax replied 2 years ago.
I need to know the value of the property before I can do any calculations. Has the property ever been your main home during your ownership of it. If so, let me know the full history including dates (month and year) of events such as purchase, moving in and out and letting.
Customer: replied 2 years ago.
Due to some domestic problems we never had the chance of living in the property. We bought it in 1986 and the valuation currently is 300,000
Expert:  TonyTax replied 2 years ago.
Thanks.

Leave this with me while I do some calculations.
Expert:  TonyTax replied 2 years ago.
Hi again.

If you sell the property, you will make a gain of £243,273 (£300,000 - £51,500 - £937 - £1,300 - £2,990), £121,636.50 for each of yourself and your spouse. So, if you gift a half share to your son, you and your spouse will each make a gain of £60,818, a total of £121,636. The first £11,000 of your respective gains will be exempt so you will each be left with a taxable gain of £49,818.

There are two rates of CGT, 18% and 28%. The rate or combination of rates you will pay will be dependent on the level of your income in the tax year of disposal of the property. Assuming you gift a half-share in the property in the 2014/15 tax year, one of the following scenarios will apply to you and your spouse on an individual basis as you are taxed independently of one another:

1 If your income in 2014/15 including the taxable gain is £41,865 or less, then all the taxable gain will be taxed at 18%.

2 If your income in 2014/15 excluding the taxable gain is more than £41,865, then all the taxable gain will be taxed at 28%.

3 If your income in 2014/15 excluding the taxable gain is less than £41,865 but more than £41,865 when you include the taxable gain then part of it will be taxed at 18% and part at 28%.

If you had no income above the personal allowance, then the CGT could be as low as £10,762.54 (Scenario 3). If scenario 2 applied the CGT would be £13,949.04.
Customer: replied 2 years ago.

Thank you. Please could you let us know how much cgt we will have to pay if we proceed gifting 50 percent
We paid 51,500 for the house, solicitor/stamp duty, land registry 937.00
double glazing £1300, rewiring £2990.

House current valuation 300,000

Expert:  TonyTax replied 2 years ago.
The figures I gave you in my previous post are for a gift of a 50% share to your son.
Customer: replied 2 years ago.
Although you have given us figures previouslly it is still not clear to us how much cgt we each need to pay, please spell it out touspp us My earning I s 58,000 and my wife is £37,000 (. Including pension)Thank you
Expert:  TonyTax replied 2 years ago.
You are a 40% taxpayer so you will pay CGT of £13,949.04 (28%).

Your wife will pay CGT at 18% on £4,865 (£875.70) and at 28% on £44,953 (£12,586.84), a total of £13,462.54.

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