How JustAnswer Works:

  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site.
    Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.

Ask bigduckontax Your Own Question

bigduckontax
bigduckontax, Accountant
Category: Tax
Satisfied Customers: 2986
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

I am a retired 57 year old with liquid funds available and

Customer Question

I am a retired 57 year old with liquid funds available and own a property jointly with my Brother & Sister valued at £120k in which my 89 year old mother lives. My Brother & Sister may wish to "sell" their share to me now at c£25k each. I would anticipate that I will sell the property in 10 years time. Can you let me know what the capital gains tax position is / or will be and are there any restriction on me purchasing their share now - effectively an undervalue transaction? Many thanks. John
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I'm Keith and happy to help you with your question.
Before I can respond I need to know the date when you bought the property in which your Mother resides. This is vital!
Customer: replied 1 year ago.

The transfer of title was only completed in January 2014 - no money was exchanged.

Expert:  bigduckontax replied 1 year ago.
Sorry, I think you misunderstood my question. I asked when the property you own which is occupied by your mother was originally purchased. this may be the key to the CGT position.
Customer: replied 1 year ago.

Sorry - my mother purchased the property in her sole name in 2002 I think. John

Customer: replied 1 year ago.

Sorry - my PC is playing up so not sure if you received my response: Property purchased in 2002 for £90k by my mother and transfer of title to my Brother , sister and I completed in 2014. Is it in order / legal for me to buy out my Brother & Sister now for £25k each even though my mother still resides in the property and what will be the future capital gains tax position in the future?

Customer: replied 1 year ago.

Hi Keith , should I wait online for reply or will it be some time? Many thanks. John

Customer: replied 1 year ago.

Hi Keith , sorry - should I wait for response or will it be some time? John

Expert:  bigduckontax replied 1 year ago.
If you had bought before 1986 when ***** ***** changed the rules, he described them as a middle class benefit, then any gain would have escaped CGT as the house was occupied by a dependent relative.
You can purchase the property from your siblings, no problem, your mother's residence is irrelevant, without any tax liability to yourself. They will, of course, be liable to CGT on any gain they make based on the acquisition price and the current market value as at transfer date. Your acquisition price is now a combination of the first half in 2002 and 50% of the current market value at transfer date. The fact that the transaction is being undertaken at a discount is irrelevant, see current market value above.
When you sell in 10 years time you would be liable for CGT on the whole gain you make. Extensions and improvements eg installation of double glazing, central heating etc inflate the acquisition price. However, if you occupy the house yourself as your sole or main domestic residence then that proportion of the occupation in time terms [it is calculated in months] would reduce your taxable gain. You also have an Annual Exempt Amount of 11K, 11.1K next tax year, to offset the gain. CGT is at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale.
I do hope I have helped you in this quick canter through the CGT pitfalls.
Customer: replied 1 year ago.

Many thanks but I am still very unclear. Am I correct in thinking that there is no problem in me purchasing their share and that this in itself will not impact on CGT? For example, based on the original purchase price paid by my mother and the date of transfer of title , if I were to sell the property in say 3 years time instead of 10 , would I have a CGT Liability? what is the CGT calculated on? Is it the value as at 2014 when I aquired a part ownership subtracted by the sale price in say 3 years time? eg Sell at £150k. - Can you privide me with how CGT would be calculated? Sorry - but would really appreciate your guidance. JOhn

Expert:  bigduckontax replied 1 year ago.
You are correct, there are no tax implications in your acquisition of your relatives share save when you finally sell. They, of course, incur one immediately on transfer.
You have now thrown the proverbial spanner in the works by saying 'original purchase price paid by my mother' when in your original question you aid you owned the property with others. It does make a difference, you know!
Customer: replied 1 year ago.

Sorry - here is the information which is very important:

Property purchased in 2002 for £90k by my mother - paid by her alone. but transfer of title to my Brother , sister and I completed in 2014 with no funds exchghanged. . Is it in order / legal for me to buy out my Brother & Sister now for £25k each even though my mother still resides in the property and what will be the future capital gains tax position in the future?

Customer: replied 1 year ago.

Sorry for any confusion , do you have the information needed to answer? Very much appreciated. John.

Customer: replied 1 year ago.

Hi sorry - I have to go out now but will be back within the hour. Kind regards. John

Expert:  bigduckontax replied 1 year ago.
Right, got it!
Your Mother, of course, avoided CGT as it was her sole or main domestic residence and entitled her to Private Residence Relief which relieves any tax at 100%.
You and your siblings acquired the property at the current market value at that time. This appears to have been in 2014 sometime. It is perfectly legal to undertake this transaction, this is the freehold which is being transferred, your Mother is a mere Tenant at Will [an equitable interest in land]*. Remember the amount paid is irrelevant, for CGT purposes it is the current market value which is always applicable in such circumstances.
I have told you the CGT position when you sell in 10 years time.
When you sell in 10 years time you would be liable for CGT on the whole gain you make. Extensions and improvements eg installation of double glazing, central heating etc inflate the acquisition price. However, if you occupy the house yourself as your sole or main domestic residence then that proportion of the occupation in time terms [it is calculated in months] would reduce your taxable gain. You also have an Annual Exempt Amount of 11K, 11.1K next tax year, to offset the gain. CGT is at 18% or 28% or a combination of the two rates depending on your income including the gain in the year of sale.
* I started my working life in the 60s as a Trainee Valuation Surveyor with the old London County Council.
Customer: replied 1 year ago.

Hi , I am back , to close this off - am I correct in thinking that if the property increases in value at less than my CGT allowance each year , then there will be no CGT liability for me when I sell, irrespective of how much I pay to buy out my Brother & Sister? Eg I sell in 3 years time at £150k and the property value in 2014 was £120k - then NO CGT ? Many thanks. John

Expert:  bigduckontax replied 1 year ago.
Within the CGT regime any gains increase in value equally by time. We all know that they don't but that's how it works. If the gain, when all the chips are down so to speak and your Annual Exempt Allowance (AEA) is taken into account, is completely absorbed there is no tax payable. The AEA is an 'Use it or loose it' allowance [HMRC speak]; you cannot carry unused portions forward to the next tax year.
It does not matter what you pay your siblings, it is the current market value at the time of transfer which is used in these computations.
However, if we take your figures 150K - 120K = 30K gain, less an AEA of say 11K = 19K to be taxed, worst case scenario with tax at 28% is 5.32K tax due.
I am so sorry to have to rain on your parade. Your thoughts were I think that the AEA unused could be carried forward, unfortunately this is not the case. CGT is a thoroughly nasty tax which can rear its ugly head unexpectedly. I advised on a case some weeks ago where a parent had lent money to his son to buy a house, but included himself on the deeds. On transferring his share to his son some years later it cost him some 39K in CGT; ouch!

What Customers are Saying:

 
 
 
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
< Previous | Next >
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex
  • Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult. GP
  • I couldn't be more satisfied! This is the site I will always come to when I need a second opinion. Justin
  • Just let me say that this encounter has been entirely professional and most helpful. I liked that I could ask additional questions and get answered in a very short turn around. Esther
  • Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help. Mary C.
  • This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!! Alex
 
 
 

Meet The Experts:

 
 
 
  • Sam

    Sam

    Accountant

    Satisfied Customers:

    6894
    26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
< Last | Next >
  • http://ww2.justanswer.com/uploads/TA/Tax Expert/2013-8-21_231010_sam.64x64.jpg Sam's Avatar

    Sam

    Accountant

    Satisfied Customers:

    6894
    26 HMRC expertise, PAYE, Self Assessment ,Residency, Rental Income, Capital Gains, CIS ask for Sam Tax
  • http://ww2.justanswer.com/uploads/BI/bigduckontax/2013-8-12_222058_1.64x64.jpg bigduckontax's Avatar

    bigduckontax

    Accountant

    Satisfied Customers:

    1772
    FCCA FCMA CGMA ACIS
  • http://ww2.justanswer.com/uploads/TA/TaxRobin/2013-8-28_16186_femalebusinessprofessionalbinderhand11038485.64x64.jpg TaxRobin's Avatar

    TaxRobin

    Tax Consultant

    Satisfied Customers:

    464
    International tax
  • /img/opt/shirt.png taxadvisor.uk's Avatar

    taxadvisor.uk

    Chartered Certified Accountant

    Satisfied Customers:

    2596
    FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
  • http://ww2.justanswer.com/uploads/MS/MsAM/2012-6-9_16426_anna.64x64.jpeg Anna's Avatar

    Anna

    Teacher, writer, biologist

    Satisfied Customers:

    268
    Great research skills, variety of work experiences, teaching experience.
  • http://ww2.justanswer.com/uploads/PD/pdheslin/2012-6-6_232056_pambig.64x64.jpg pdheslin's Avatar

    pdheslin

    Consultant

    Satisfied Customers:

    51
    20+ years of internet site creation and search engine optimization. Dozens of search tools at my disposal.
 
 
 

Related Tax Questions