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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Hello I bought a flat in London in 1997 in which I lived for

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Hello I bought a flat in London in 1997 in which I lived for 5 years and have since been letting it. I am now putting it on the market to sell. Can I avoid paying CGT if I transfer my ownership of my current residence to my parents?
Submitted: 3 years ago.
Category: Tax
Expert:  TonyTax replied 3 years ago.
Hi.

I'm afraid that giving away your current home to your parents won't help you avoid Capital Gains Tax on the flat which has been let for some years assuming you will make a gain on it. By definition, a property which is let cannot be your main residence when it is let unless you were moved to a different part of the country or abroad to work by your employer so you could not live in it. The fact that you will only own one home if you give your current home to your parents won't cover all the period the remaining property was let.

The gain for the period the property you wish to sell was your main home will be exempt from CGT as will the gain for the last 18 months of ownership. The remaining gain would normally be taxable but as the property was both your main home and it was let you will be entitled to a further deduction from the gain called letting relief which will be the lesser of:

1 £40,000,

2 the sum of the gain for the period that you lived in the property and the gain for the last 18 months of ownership of the property and

3 that part of the letting period gain not covered by the last 18 months of ownership.

Take a look at the HMRC helpsheet HS283 for more information on CGT and the main residence.

I hope this helps but let me know if you have any further questions.
Customer: replied 3 years ago.

That's very helpful, thank you. I bought the flat for £175,00 and it is going on the market for £675,000. Would you be able to give a rough estimation as to how much CGT would be payable?

Expert:  TonyTax replied 3 years ago.
I'd be happy to do that. Can you confirm that the property is in your name only and, as the CGT is related to the level of your income, how much your annual income is please. Would you also let me know the month in 1997 you bought the property, the month and year that you moved out and it was let, whether it has been let or available for let pretty much continuously since and whether is still let.
Customer: replied 3 years ago.

The property is in my name only.


I bought it in November 1997 and moved out in October 2002. It was let in November 2002 and has been so almost continuously until February 2014 since when it has been unoccupied.


My gross annual income is around £60,000

Expert:  TonyTax replied 3 years ago.
Thanks.

Leave this with me while I do some calculations.
Expert:  TonyTax replied 3 years ago.

Hi again.

If you sell the property in July 2014 for £675,000 you will make a gain of £500,000 (£675,000 - £175,000). By that time you will have owned it for 201 months of which you will have lived in it for 60, let it for 136 and it will have been vacant for 5.

The gain for the period the property was your main home will be exempt from CGT as will the gain for the last 18 months of ownership. That accounts for £194,030 (£500,000 / 201 x 78). The remaining taxable gain of £305,970 is that part of the letting period gain which is not covered by the last 18 months of ownership (£500,000 / 201 x 123).

As the property was both your main home and it was let you are entitled to letting relief which is the lesser of:

1 £40,000,

2 the sum of the main residence gain and the gain for the last 36 months of ownership of the property which is £194,030 and

3 the letting period gain of £305,970.

Letting relief of £40,000 will reduce the remaining taxable gain of £305,970 to £265,970 and the annual CGT exemption of £11,000 will reduce it further to leave you with a net taxable gain of £254,970.

There are two rates of CGT, 18% and 28%. The rate or combination of rates that you will pay will be dependent on the level of your income in the tax year that you dispose of the flat. As your income is well above the point at which you start to pay income tax at 40%, all the net taxable gain will be charged at 28% do your CGT liability will be around £71,391.60.

You can take account of purchase and sale legal fees, survey fees, stamp duty, selling agent fees and other disbursements when calculating the gain so you should be able to reduce the tax liability a little.

If you are married or in a civil partnership, you could reduce the CGT exposure by putting the property into joint names but in order for such a move to be effective insofar as main residence relief is concerned, the property would need to be your main home at the time of such a switch. Furthermore, the property is no longer let so your spouse or civil partner would not qualify for letting relief as the property would not have been let during their period of ownership. The loss of those two reliefs on half the gain would almost certainly negate the potential tax saving to be had if your spouse or civil partner was a lower rate taxpayer.

Customer: replied 3 years ago.

thank you very much

Expert:  TonyTax replied 3 years ago.
Thanks.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15883
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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