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TonyTax
TonyTax, Tax Consultant
Category: Tax
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Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Looking advice regarding selling a property without

Resolved Question:

looking for sound advice regarding selling a property without paying tax on it.The property in question is an inheritance handed down by my parents to myself and two siblings.The property is in Scotland and is valued at approximately £180,000.Then proceeded to buy out my two sisters to the value of £50,000 each after extensive home improvements by myself.Then decided to rent out the property on a buy to rent morgage of £100,000.
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Can you tell me what the property was worth when you and your siblings inherited it. If it was inherited in stages, let me know. How much have you spent on improvements? Has the property ever been your main home?
Customer: replied 1 year ago.

Property was valued at approximately £130,000 before renovations,of which ive spent anything between £22,000 and £26,000.Has been my main residence when i stayed with my parents

Expert:  TonyTax replied 1 year ago.
Thanks.

Was it worth £130,000 when you inherited it? Has it been your main home during your ownership of it?
Customer: replied 1 year ago.

It was £130,000 when inherited,but i reside in england,so has never been my main abode.

Expert:  TonyTax replied 1 year ago.

Thanks.

Leave this with me while I draft my answer.

Expert:  TonyTax replied 1 year ago.
Hi again.

You inherited a one-third share of a property worth £130,000 so your base cost was £43,333. You spent £26,000 on improvements and then paid £100,000 for the two-thirds of the property you didn't own. Your cost increased to £169,333.

HMRC may try to claim that the £26,000 you spent should be divided by three as the price you subsequently paid for the other two-thirds would have reflected the increased value of the property as a result of the improvements. Take a look here for some notes on that. Such a division would increase the gain to £30,000. I would resist such a move by HMRC and claim the full £26,000.

If you sell the property for £180,000, you will make a gain of £10,667. As the annual CGT exemption is £11,100, there would be no CGT to pay assuming you make no further gains in the tax year you dispose of the property.

If you give the property to your son, you will be treated as having sold it to him at its open market value and it will also be a potentially exempt transfer for Inheritance Tax purposes. Should you die within seven years of making such a gift its value will form part of your estate for IHT purposes.

I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.

Thank you for all the above information but I am unsure of the paragraph below:

HMRC may try to claim that the £26,000 you spent should be divided by three as the price you subsequently paid for the other two-thirds would have reflected the increased value of the property as a result of the improvements. Take a look here for some notes on that. Such a division would increase the gain to £30,000. I would resist such a move by HMRC and claim the full £26,000.

Are you able to explain it in more simple terms please?

Expert:  TonyTax replied 1 year ago.
You only owned one-third of the property at the time the improvements occurred. Normally, each part-owner would contribute to the cost of the improvements so each of their base costs would increase evenly.

I'm assuming that when you bought the other two-thirds of the property, the price you paid reflected the increased value caused by the improvements. In cases where the buyer and seller were not connected, I've seen HMRC try to split the improvement costs between the owners regardless of the fact that the costs were incurred by one owner.

As you and your sibling are connected, the market value for the two thirds should be used regardless of the price paid by you. As I said in my answer, I would claim the entire £26,000 of improvement costs.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15761
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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