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bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 4190
Experience:  FCCA FCMA CGMA ACIS
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I helped my son get on the property ladder in 2007 when he

Customer Question

I helped my son get on the property ladder in 2007 when he was at uni by putting 15k deposit into a BTL mortgaged property, and he put in 35k (from a family inheritance). We are joint tenants and joint mortgage holders and on the deeds.
He lived in it on and off over the years with flatmates, but now wants to remortgage in his name only. I have agreed to accept less than my deposit back. The property has increased in value by around 145k. I have received the transfer of equity forms, but worried to sign because of any tax implications, even though I have not gained anything out of the property. I am a low tax rate payer and have my own residential mortgaged property. The mortgage advisor says no stamp duty is incurred but i am unsure about CGT and whether this will be classed as a " gift". Please advise.
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
Your mortgage adviser is correct; you will probably avoid SDLT on the transaction. However, you were a 50% owner with your son and the transfer of the property to him constitutes a disposal for CGT purposes and tax will be due on the gain. 145K / 2 = 72.5K less 11K Annual Exempt Amount leaves 61.5K exposed to the tax. This will be levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the disposal year. Worst case scenario is a tax bill of some 17.25K, but from what you tell me it won't be quite as bad as that.
What you gave your son is a gift and gifts are outside the scope of UK taxation. Thank your lucky stars you don't live in France where gifts tax kicks in at 5K euros.
I am so sorry to have to rain on your parade.
Customer: replied 2 years ago.
Hello Keith,
The property was greatly overvalued by the mortgage company and therefore the " gain" would certainly be less if the property was sold on the open market. Why would I be charged CGT on a virtual but not actual gain? the property is not being sold.
What if I did not want my deposit back? i have actually lost money on this over the years therefore I cannot understand.
I feel I was not advised of these implications by the solicitor who did the conveyance in 2007. I was just helping my son. The transaction has not yet gone through.
what alternatives do we have now?
Expert:  bigduckontax replied 2 years ago.
The actual gain for tax purposes is calculated from the acquisition cost less the net disposal proceeds. The acquisition costs are the purchase price plus purchase costs plus and improvements eg installation of double glazing, central heating, extension etc. Disposal price would be the market value as at the date of transfer.
Unfortunately, you have been well and truly caught by Benjamin Franklin's dictum that in life there are but two certainties, death and taxes. Your surrender of the 50% share constitutes a disposal for CGT purposes as I explained in my original answer. Whether you should have been told of the situation by your advisers will depend on a number of factors, the first of which is did you actually ask for advice on your latent tax situation? If you did not than, with respect, you have not got a leg to stand on in an action over the matter.
If the transaction has not yet gone through then you could leave the situation as it is, you owning half. The only trouble is that eventually CGT will kick in unless you die before hand when there will be no CGT payable, but your share will be included in your estate at probate value and be taxed at a 40% flat rate on any surplus over 325K.
Customer: replied 2 years ago.
Thanks for replying promptly, The virtual " gain" is on the opinion of the remortgage company valuation only. Estate agents have valued the property at far less. Therefore, How does the inland revenue calculate the market value of a property please? Also isnt there a selling within 18 months , no Cap Gains Tax rule? Or one where if you live in the property for a time? I am considering backing out , therefore am grateful for your reply.
Expert:  bigduckontax replied 2 years ago.

The Inland Revenue ceased to exist several years ago on amalgamation with HM Customs and Excise to form HMRC. One HMRC official of whom you probably have not come across is the one originally known as the District Valuer who'es main task was assessments for rates and Council Tax. If necessary that official can assess a current market value.

You are slightly correct with your 18 month rule. I should perhaps have mentioned this. In your last 18 months of ownership you are indeed deemed to have been in residence even if this is not the case. Take your total ownership in months and deduct 18. Then the latter figure over the former is applied to the gain to reduce the gain exposed tom CGT slightly. However, as you never lived in this house this concession almost certainly would not be allowed.

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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.