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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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My brother and I are 50/50 owners of a family holiday cottage

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My brother and I are 50/50 owners of a family holiday cottage that we inherited piecemeal from our Father & 2 maiden aunts between 17 & 20 years ago.
I am intending to sell my half share to my Brother's daughter for £70,000 because I have Parkinson's Disease and can no longer use the cottage. The market value of my half is probably a bit more than £70,000 but we have not had it valued.
I have been advised to transfer half my share to my Husband before we sell, which I will do, but how will the Revenue calculate the capital gain? I have no idea if a value was put on the Cottage on the 3 occasions that we inherited a share and over the years we have made several improvements which will have added to its market value and changed the internal layout .
Would it be worth contacting the Revenue and seeking information and advice or should I just wait and fill in my Tax Return next year?
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

On each occasion that you acquired an interest in the cottage, the value at the time of acquisition of the share is the cost of that share for Capital Gains Tax purposes. You would add to that a share of the improvement costs to arrive at the gross cost for CGT purposes.

You will need to try to obtain a valuation of some sort as the tax office will instruct the District Valuer to look at estimates of valuations and they may challenge them. The DV will have access to property transaction records going back many years. Some say that because land agents are believed to err on the side of taxpayers in their valuations of property in order to keep CGT liabilities down, the DV acts in a similar capacity on behalf of the tax office in order to achieve a higher tax yield. I've never subscribed to that view and the DV has always been able to provide good evidence for their valuation of a property that a client of mine has sold.

You are not connected with your niece for CGT purposes as you will read here but if your share of the cottage is sold at under value and the tax office say that it was not a transaction carried out at arm's length, the actual market value of the share can be substituted.

If you transfer half your share to your husband before the disposal, he will take half your cost as his own so your gain will effectively be divided in two. The first £11,000 of your respective gains will be tax free. The balance, if any, will be charged to CGT at 18%, 28% or a combination of the two rates depending on the level of your respective incomes.

Any tax due won't be payable until 31 January 2016 assuming that you sell your share of the property in the current tax year so you have time to try to get a credible independent valuation. You could ask the tax office if they would consult the District Valuer on your behalf before the sale but I have never known a taxpayer do that. Ther tax office will certainly provide a post transaction check of values you intend to use in calculation of a capital gain if you complete and submit a form CG34.

I hope this helps but let me know if you have any further questions.











Customer: replied 2 years ago.

Many thanks for your answer.

There seems to be a lot to take in so I'll consider it further tomorrow and then let you know if I have any further questions.

Expert:  TonyTax replied 2 years ago.
OK. I'll be here.
Customer: replied 2 years ago.

Thanks.

Expert:  TonyTax replied 2 years ago.
I have to reply to your post as if I don't, I cannot answer other questions so you do not need to respond to this post or any emails from just answer until you ready to do so tomorrow.
Customer: replied 2 years ago.

Hi,

Thanks for your previous reply.

It has been suggested to me that, in addition to transferring half my share to my Husband, we could also split the subsequent sales into 2 halves, one of each in 2014/15 and the other two in 2015/16 in order to benefit from 4 lots of CGT allowances. Would you agree that that would be allowable by the Revenue and, if so, are there any things that my Husband and I and our Niece should or shouldn't do during the process to avoid creating situations that could upset the Revenue in due course?

The sort of thing I would wish to avoid is when my Husband & I complete our tax returns in 2016 for 2015/16 and the Revenue link those returns to the previous year could the Revenue say "you have deliberately created a 'false' split in the sale between the 2 financial years to avoid CGT and so we will only allow 1 year's allowances."

I definitely want to go ahead with the sale one way or another and pay as little CGT as possible but I don't like the idea of having to wait 2 years or more to find out if it has all been OK, or not! Is there anything else you can suggest, please?

Expert:  TonyTax replied 2 years ago.

If you gift half the property to your husband, there is nothing technically to stop you each then selling half of your respective half shares in the property to your niece.

I've seen piecemeal sales or gifts of property to the same person over several tax years in the past. Anti-avoidance legislation exists to enable HMRC to challenge what is considers artificial transactions with the sole purpose of avoiding tax but the fact is that you will be giving up a real asset in exchange for real money. Read the notes here and the leaflet entitled "Tempted by tax avoidance". Yours is not simply a transaction the main purpose of which is to save tax which is what tax avoidance schemes dreamt up by tax lawyers and which have no real commercial purpose other than to save tax are. You are enaging in real life transactions.

Legally, there is nothing to stop anybody selling a partial share in a property but you should certainly have nothing recorded which suggests that the first partial disposal is merely the first of two partial disposals by each of you and your husband to the same person as that will give HMRC a stick to beat you with.

I realise that you probably want to start this process imminently but if you could leave the first disposal to your niece until the tax year following that in which you put the property into joint names with your husband it will look better.

It may be that the transactions you wish to carry out will never be looked at by HMRC. They simply don't have the staffing levels to look at everything which short sightedness ultimately costs the Treasury billions in tax.









TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15840
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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