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bigduckontax, Accountant
Category: Tax
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Experience:  FCCA FCMA CGMA ACIS
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Dear TaxRobin, I was wondering if you would be able to assist

Customer Question

Dear TaxRobin,
I was wondering if you would be able to assist me with this query regarding if Capital Gains Tax would be liable for my parents?
My parents moved to the UK around 1968 and for a few years were renting in and around the East London area. They eventually moved into the family home around the year 1973/4 and finally paid off the mortgage for approximately £4000 in around the year 1990. The property is now worth £425,000.
My Father retired in 1999 and built a holiday home abroad. So, from this year he moved to Mauritius having left the UK. My Mother retired around the year 2000 to accompany my Father.
Both have been traveling between the two countries over the past 10-12 years, but the majority of their time is spent abroad. They have not declared, as they were not aware of this, of their main place of residence.
Their bank accounts and pensions remain here in the UK and all documents are posted to the house, including their Doctors.
I, their son, have been living in the property since birth. The council tax and utility bills are being paid by me as all bills are under my name.
My parents are no longer registered on the voting register, as I thought it was best to remove them from it.
They now want to pass over the property in the UK to me.
Firstly, are my parents liable to pay for CGT as they have one property in the UK and another abroad?
Secondly, I would like to re-locate once my parents transfer the property to me. Another question is, what the best option is;
A) To transfer the property directly to me then I sell it and purchase another
B) Or, my parents sell the property first and purchase the one I want and then they transfer the new house to me?
Thirdly, they are now considering to also transfer the property abroad to another member of my family. If this was to be done before the UK transfer over to me, would they still be liable for CGT as they would no longer on two properties? However, they will remain to live in this property.
Would you be able to assist in this matter and how can I compensate you?
Kind regards,
Jacques
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Jacques, I'm Keith and happy to help you with your question. It is highly complex and will take me some time.
I have assumed that firstly your parents owned both their UK residence and their overseas house jointly and that they did not elect when they built their Mauritian home they did not elect to which property Private Residence Relief (PRR) would apply. Accordingly, from the tenor of your question HMRC will determine from the facts to which residence PRR should apply and that would be the one in Mauritius from 1999/2000. Thus when they convey the UK property to you this triggers a disposal for CGT purposes and the following will ensue. Take the two halves of the UK property, each parent has one of these. The gain is 425K less the acquisition cost [not mentioned in the question so I will assume for illustrative purposes 100K] ie 325K, say 163K each. Now calculate for each in months the total ownership time and the total time from their retiring to M. The amount of the gain chargeable to CGT will be 163K multiplied by the proportion of M residence against the total ownership time. It will be slightly different for each, but something like 155/325 = 48%. 48% of 163 is say 78K. Now deduct 11K Annual Exempt Allowance leaving 67K taxable at 18% or 28% or a combination of the two rates depending on the income including the gain in the year of sale. Worst case scenario is a bill of say 19K each, phew. But soft, non residents out of the UK over five years are not taxable on capital gains, changes in 2015.
Your parents should notify their UK tax office by means of a P85 of their departure to M. Fortunately this can be done at any time and on line also. On receipt HMRC will make them non-resident from the tax year following the date of departure and also split the leaving year into two parts, one resident and one non resident.
As regards ***** ***** to you of moneys for your new house whichever method you use will not have any significant effect. Your parents gift of the overseas property would trigger another disposal for CGT but as PRR would apply and that relieves the tax by 100% there would be no tax to pay. It would, however, be a gift with reservation as far as UK Inheritance Tax (IT) is concerned which might cause future complications.
In my opinion the situation of both you and your parents should be placed in the hands of a trusted, experienced, local professional to guide the lot of you through the CGT and IT maze and negotiate with HMRC on your behalf. This assistance will not come cheap as there is the Mauritian tax position to bear in mind also, but there is a lot of money at stake here and one false move could cost dear. You may need to retain an UK multi national practice instead; never a cheap option!
I do hope I have shed some light on your conundrum and shown you a possible way forward in the matter.
Customer: replied 2 years ago.

Hi Keith,

Apologises for the late response, I would like to thank you for responding to our query.

You have been very informative and helpful and would not doubt using you again and recommending your professionalism.

Again many thanks and all the best,

Jacques

Expert:  bigduckontax replied 2 years ago.
Delighted to have been of assistance, Jacques.
Please be so kind as to rate me before you leave the Just Answer site.
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 3379
Experience: FCCA FCMA CGMA ACIS
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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.

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