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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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Our son is renting a flat from us and we wish to sell it to

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Our son is renting a flat from us and we wish to sell it to him at a significantly discounted price. It cost about £120,000 originally, we are not sure of the value but probably 200,000. We will sell to him for something like 100,000. We have a buy to let mortgage to pay off of about 100,000. What are the CGT and stamp duty implications of such a transaction and is there a tax efficient way of doing it? (We do have spare cash and could pay off the mortgage first)
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Leave this with me while I take a look and draft my answer. It will take a while so please bear with me.
Expert:  TonyTax replied 2 years ago.

Hi again.

CAPITAL GAINS TAX

As you and your son are "connected persons", you will be treated as having sold the property at its full market value for Capital Gains Tax purposes so you will have have a gain of about £80,000, £40,000 for each part owner. Assuming this property was never your main home, the only deduction you will qualify for will be the annual CGT exemption of £11,000 so you will each have a taxable gain of £29,000. There are two rates of CGT, 18% and 28%. The rate or combination of rates that you will pay CGT at will be dependent on the sum of your individual incomes and your respective shares of the net taxable gain. The mortgage is irrelevant as far as CGT is concerned.

INHERITANCE TAX

The difference between the market value of the property and what your son pays for it will be a gift for Inheritance Tax purposes. So long as you live for at least seven years after making the gift, it will not form part of your respective estates for IHT purposes.

STAMP DUTY

Take a look under the heading "Receiving land or property as a gift or from a will" here.

If you sell the property for £100,000, there will be no stamp duty as the cash consideration will be less than £125,000, notwithstanding the fact that the property is worth £200,000.

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

Customer: replied 2 years ago.

Thanks, ***** ***** Shame, isn't it.

How would we assess the value for CGT purposes? Do we have to show some specific form of evidence?

My son will be getting a mortgage - will the value placed on by the bank be the official value?

Expert:  TonyTax replied 2 years ago.
You will need to get a couple of professional valuations so that you have something to show HMRC if they query the "disposal price" via the District Valuer. The bank value won't necessarily be the official value.
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