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TonyTax
TonyTax, Tax Consultant
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My wife and I jointly own a buy to let flat in London. We wish

Resolved Question:

My wife and I jointly own a buy to let flat in London. We wish to sell it and buy another property in a cheaper city and gift it to an adult child who has mental health issues and cannot adequately support himself. I see from HMRC guidance that normally such exemption is limited to spouses or partners. Might medical evidence be able to extend eligibility to a son?
What capital gains tax would we have to pay under these circumstances on the purchase price of such a property? If there was capital left over from the sale of the buy to let and purchase of a new flat for him, would capital gains tax apply to that balance? This is a nest egg for our extreme old age.
Thanks you in anticipation,
Yours,
William ( keep full name confidential please)
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.

Hi.

If you sell the property in London, you will almost certainly have Capital Gains Tax to pay on the profit or gain. How much that will be will depend on whether it was ever your main home. The fact that you might use the money to buy and gift a property to your son who has mental health issues has no influence of the CGT situation on the London property I'm afraid.

The gift of a property to your son will be both a disposal for CGT purposes and a gift for Inheritance Tax purposes.

As far as CGT is concerned, if you buy a property for your son and gift it to him very quickly, there is unlikely to be any CGT as the value is unlikely to have changed between purchase and gift. A gift to a connected person is deemed to be a disposal at the open market value. There can be no CGT on cash gifts.

As far as Inheritance Tax is concerned, so long as the donor of a gift lives for seven years after making it, the value of the gift will not form part of the donor's estate for IHT purposes. Take a look here and here for information on Inheritance Tax.

There are tax concessions around trusts for "vulnerable people" which you can read about here but I'm not sure they will be of any use to you in your situation.

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

Customer: replied 2 years ago.

Thank you . I don't fully understand.

We would have to pay CGT on the profit on the sale of the buy to let regardless of our son’s condition. OK

Next you say, “As far as CGT is concerned, if you buy a property for your son and gift it to him very quickly, there is unlikely to be any CGT as the value is unlikely to have changed between purchase and gift. A gift to a connected person is deemed to be a disposal at the open market value. There can be no CGT on cash gifts

This isn’t clear to me and even appears to contradict the first point if we gift him a new property very quickly

Are you saying no GCT would apply on the cash to pay a cheaper flat which costs less than the profit from the sale of the buy to let? But CGT would apply to the rest of the profit?

Please clarify

Thank you.

Expert:  TonyTax replied 2 years ago.

I'm not sure what isn't clear. I can assure you that there are no contradictions in my answer.

If you buy a property for £150,000 and gift it to your son a year later when it is worth £200,000 for example, you will make a gain of £50,000. So, if you gift the property to him as soon as you have bought it, you will be making a disposal of an asset at its market value of £150,000, having paid £150,000 for it. There can, therefore, be no gain unless you bought the property at a hefty discount to its true market value.

If you gift your son the cash to buy a property as opposed to buying it and then transferring it to him, there will be no gain as there is no CGT on a gift of cash.

As I said in my answer, the use to which you put the funds from the sale of the London property has absolutely no impact on the CGT position on the sale of that property. It's completely irrelevant. In other words, you don't get a discount from the gain because you are using some of the money to buy a property for your son. So, for example, if you sell the London property for £500,000 having paid £200,000 for it, you will make a gain of £300,000 on which you will pay CGT, assuming it was never your main home. The first £11,000 of gains made by an individual in any one tax year are exempt from CGT. What you do with the cash is completely irrelevant to the CGT position on the London property.

Customer: replied 2 years ago.

Thanks.. that is clearer, actually. Take it from me as the person asking the question rather than you who knows the answer. Point one refers to the buy to let. Point two refers to any gain on the new property. This makes sense but wasn't quite clear although.likely. Email perhaps seems more disputatious than conversation where a supplementary question seems.more natural. You might bear that in mind. And you rightly did invite a follow up question if necessary.

Expert:  TonyTax replied 2 years ago.

Thanks. I'm happy to read that you understood the follow up answer.

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