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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4100
Experience:  FCCA FCMA CGMA ACIS
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House sign over split three ways

Customer Question

My father is in poor health and is now living with me. I have spent 16,ooo renovating his home. He wants to sign over the house one third to me, one third to my brother and one third to my brother daughter. I will also get the 16,000 I put into the property. My niece is going to live there and instead of paying rent wants to pay me a set amount each month to gradually buy my share of the property. In all of this how would we stand for tax. As im not gaining rental but gradually selling my share of the property will this be taxable. The property is worth 150000

Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Not many people realise that whenever they sell landed property any gain is liable to Capital Gains Tax (CGT). For the majority it is their sole or main domestic residence so Private Residence Relief (PRR) applies which is 100% on the gain. On this principle your father will probably escape CGT on moving in with you as in the last 18 months of ownership he is deemed to be in residence and PRR extended even though he may be living elsewhere.
As for you position, assuming he signs over as planned you will have an acquisition price of 50K [150/3] and the three of you will be tenants in common, the legal term for joint ownership. As no rental is passing for for the occupation by your niece no liability to Income Tax arises. The disposal of the property to her in installments will trigger a possible CGT liability. However, there is a latent danger that if the installments are spread over less than 18 months they may be deemed as income and thus subject to Income Tax (IT). Furthermore the transfer date is the key to CGT and with installment transfers this can be a very woolly area. I am of the opinion that you may need to take professional advice from a trusted local practitioner in this matter.
However, let us not be too gloomy. Your share of the property has an acquisition price of 50K. Add to this one third of the 16K you spent on improvements eg extensions, installation of double glazing or central heating, but not routine maintenance which is allowable against rents for IT purposes. Here is another loophole for you if the installments are deemed as rentals. The repayment of the 16K is, in any event, a personal matter between the tenants in common and outside the scope of UK taxation. We now have an acquisition price of say 55K. Depending on the final date of sale, which I have told you can be complicated to determine, and an independent valuation at that date, will give you a disposal price, the difference between that and 55K being the gain. But soft, you have an Annual Exempt Amount (AEA) of 11K [14/15 rates] to offset this. Even better, if the staggered payments are indeed deemed to be income, then you would receive Lettings Allowance of up to 40K instead of the AEA. Under these scenarios you might escape CGT altogether.
If you don't then CGT is levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale.
If you are still with me perhaps you now realise why you might need a local professional to assist you! Your brother will be in the same boat CGT wise.
I do hope I have helped shed some light on your rather complex conundrum.
Customer: replied 2 years ago.

Hi thanks for the answer - the disposal to my niece will be over much longer than 18 months. she is thinking about 500 per month

Expert:  bigduckontax replied 2 years ago.
Providing that there is no interest involved this would be a repayment of a personal loan and thus outside the scope of UK taxation. I am of the opinion that it unlikely in view of the period involved that such repayments will be deemed to be rental payments and thus subject to IT.
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Expert:  bigduckontax replied 2 years ago.
Thank you for your excellent support.