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TaxRobin
TaxRobin, Tax Consultant
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Experience:  International tax
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Hi, My wife and I purchased a property for rental in 2004

Resolved Question:

Hi,
My wife and I purchased a property for rental in 2004 when we were married
It is in joint names and 50/50 ownership
We separated in 2008 and it has remained in joint ownership to this day providing rental income.
Purchase Price £485,000
Mortgage £350,000
Stamp Duty £14,550
Cost of purchase £3000
Refurbishment £19,450
Current Value: £1,200,000
Given the following settlement options, what is the impact of both parties of the following:
1. Sale of property and splitting of proceeds 50/50
What is the CGT liability of both parties?
2. One partner buying the the other out of their 50% share and keeping the property as a rental
What is the CGT liability of the partner who is bought out?
What is the CGT liability of the partner who is now owner of the rental property
3. One partner buying the other out of the property and them moving in as their primary residence.
What is the CGT liability of the partner who is bought out?
What is the CGT liability of the partner who will be living in the property.
What is the owners future liability should they choose to sell in 5 or 10 years time?
Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  TaxRobin replied 2 years ago.
Hello and thank you for allowing me to assist you.
If this property has always been rental then the CGT will apply on the gain (for each) in the sell.
What is the CGT liability of both parties? the same as the split on the income. The split for CGT would be 50/50 as well.
What is the CGT liability of the partner who is now owner of the rental property? None except their basis (cost) now is the amount paid to the other and added to their original cost.
What is the CGT liability of the partner who is bought out? Their share of the cost and difference in the sell. The 50% would still apply to the owner that sold.
What is the CGT liability of the partner who will be living in the property. Residence relief can apply for the time it is their residence and on the gain that happens form the change to sell.
What is the owners future liability should they choose to sell in 5 or 10 years time? Pretty much answered in the question before this one but, they can claim Private Residence Relief on the time they owned and lived there but the gain prior to them using would be subject to CGT.
Customer: replied 2 years ago.

Thanks for the prompt reply. Just one more clarification on calculation of the cost portion.

If one partner is bought out, is the 50% CGT liability worked out with all or 50% of the original cost calculated?

Expert:  TaxRobin replied 2 years ago.

They work work out their CGT based on 50% of the cost when originally purchased. Everything is halved.

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