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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4191
Experience:  FCCA FCMA CGMA ACIS
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In 1993 I bought a flat for £70,000 incl costs and by means

Customer Question

In 1993 I bought a flat for £70,000 incl costs and by means of a Declaration of Trust I held the property on trust with the proceeds of a sale to go to myself and my 4 children equally (ie 1/5 each).
I have now sold the flat and the proceeds after expenses are £87,000 each. Am I correct in assuming that my cost base for CGT is the £70,000 I paid, so my gain is £17,000 and the cost base for each child is £0?
Don Black
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Please advise if this flat was your sole or main domestic residence?
Customer: replied 2 years ago.

No. Second home which I used as a pied a terre while working during the week in London.Declaration of Trust was to mitigate inheritance tax in case of my death.

Expert:  bigduckontax replied 2 years ago.
There may be a loophole here. Gov UK guidance states that:
'Private Residence Relief: Trustees pay no Capital Gains Tax when they sell a property the trust owns. It must be the main residence for someone the trust says can live there.'
Since you lived in the flat for the majority of every week I would suggest that this argument might be open to you.
If there is a CGT liability however it will be on the Trust, but the quantum is very small, at a rate of 28% on the gain. this is calculated from the net selling price ie selling price less costs of sale deducted from the acquisition price. The latter is the purchase price plus costs of purchase plus any improvements eg installation of double glazing, central heating, extensions, but not routine maintenance. This gain less GBP 5.5K is taxable, worst case scenario about 3.5K CGT payable by the trust before it is would up.
Customer: replied 2 years ago.

I do not think Private Residence relief would apply as I have not lived there for the last 8 years having retired.

The property was not held by the trust but in my name with the proceeds of sale going to myself and my 4 children under a Declaration of Trust. I do feel there is a probably gain to each person. If so is my cost base for CGT £70,000?

Expert:  bigduckontax replied 2 years ago.
Well yes and no, it is inflated by purchase costs and any improvements as I explained before.
In that case the gain, on the face of it 17K, is reduced by your Annual Exempt Amount (AEA) of 11K, leaving 6K exposed to tax at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale. Worst case scenario is a tax bill of say 1.7K. If you rented the property out there might be an entitlement to Lettings Relief up to 40K in place of the AEA.
If you did let it then this 17K gain is reduced by a ratio of letting time in months against total ownership time in months which might reduce your exposure to CGT even further.
I do hope I have helped you with your question.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.
Thank you for your support.