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TonyTax
TonyTax, Tax Consultant
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I was just looking to see what was online discussing CGT and

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I was just looking to see what was online discussing CGT and this site came up!
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.

Can you tell me what your question is please.
Customer: replied 2 years ago.

sorry, hope you havent been hanging on....I have vistors, so will come back to this later on

Expert:  TonyTax replied 2 years ago.
OK. I'll be here.
Customer: replied 2 years ago.

ok. Finally free now.

My questions concern CGT on UK property. I guess these questions come up lots, so I'm sure you can help.

I jointly own 3 properties with my 3 siblings. I know CGT is due only on sale, not transfer. However, we are going to divi up these joint assets as our mother died last year, and the complexities of her estate mean none of us want complexity in the future for our off spring. But none of the properties will be sold yet.

The 3 consist of:-

1 BTL which our mother bought in 2000 for 69k was TR1 transferred to the 4 of us in 2003 (just after our father pass away). None us us have ever lived there. I assume CGT will be due on the eventual difference between the original purchase price of £69k and the eventual sale price, which currently is around 175k?

The 2nd house the 4 of us purchased jointly in 2011 for £184k. This is currently worth around £264k. No brainer, there is a current CGT liability of £80k on this one. Correct?

Of course the 3rd one is the complexity.

My mother bought this one for 95k in 1996. She TR1 transferred this to us in 2008. At time of transfer this was valued at £250k. Mum lived in this primary residence until 2008, when she moved into sheltered accommodation. My sister moved into this house then. Ive no idea when she classed this as her primary home, as she owned a more expensive house for the next 2/3 years in London. This was sold maybe in 210. As Mum died 6 years after this transfer it is part of her probate valuation and subject to IHT. This property is currently worth £350k. (or was at her death) I assume that as this was still part of Mums estate (and subject to IHT) that this original purchase price would be now be the value at time of transfer rather than the original purchase price? i.e. £250k Meaning the CGT would currently be £100k Or do we end up getting taxed twice?!

On the matter of original purchase prices, I guess the revenue have access to these historic prices (if they want to) so there would never be a debate, about values when transferred, as these non financed transfers do not count, unless it was part of probate?

Also, is there anyway of the 4 of us using up any of our annual CGT tax free allowance without selling these properties.

There is no urgency to any of the transfers we are thinking about, so these could be done over several years.

Lots of questions, I'm afraid!!

I look forward to your thoughts.

Regards

Mike Byrne

Expert:  TonyTax replied 2 years ago.
Hi.

Let me take a look at this and I'll get back to you in a while.
Customer: replied 2 years ago.

that's fine. I know there's a clock in the back ground!!

If it make any difference (maybe tax difference) at all the profile of the 4 of us is

two of us are both early retired people in their 50s, who both own other property but are not currently paying 40% tax.

Our 2 younger brothers are both bankers in the city. Both have property portfolios, live in million pound homes etc and pay %50 tax

Expert:  TonyTax replied 2 years ago.
Hi again.

There can be a CGT charge on a gift of property, particularly between connected people such as siblings.

1 The gain if it was sold today would be the difference between the disposal proceeds and the value of the property when it was gifted to you and your siblings by your mother in 2003. That was both a disposal for Capital Gains Tax purposes and a potentially exempt transfer for Inheritance Tax purposes by your mother.

2 The potential gain is £80,000. £80,000 is not the CGT liability itself.

3 Notwithstanding the fact that the property would have been included in your late mother's estate at its value when she passed away, your cost for CGT purposes is £250,000, its value when it was gifted to you. It would also have been a disposal for CGT purposes, though your mother's gain would have been exempted by the main residence relief rules.

As I said at the beginning of my answer, there can be CGT on gifts or transfers of assets between individuals. The annual CGT exemption can be used in such circumstances.

You should have an accountant or tax adviser look closely at the figures to assess the potential for a division of the properties with a view to minimising CGT.

Take a look at the notes here on the subject of a claim that can be made between the owners of jointly owned properties on a division of those properties. Where cash is involved to equalise transfers, there may be CGT to pay.

There are two rates of CGT, 18% and 28%. The rate or combination of rates that an individual may pay is dependent on the level of their income in the tax year that the gains arise. For 2015/16, one of the following scenarios will apply:

1 If the sum of the individual's income and the net taxable gain in 2015/16 is £42,385 or less, then all the taxable gain will be charged to CGT at 18%.

2 If the individual's income alone in 2015/16 is £42,385 or more in 2015/16, then all the taxable gain will be charged to CGT at 28%.

3 If the individual's income alone in 2015/16 is less than £42,385 but greater than £42,385 when the net taxable gain is added, then part of the net taxable gain will be charged to CGT at 18% and part at 28%.

I hope this helps but let me know if you have any further questions.
Customer: replied 2 years ago.

ok.

So to clarify.

property 1- CGT is not calculated from the original purchase price, it is the value at time of transfer to us?

property 2 has a potential 80k gain. if we moved this from joint ownership to individual ownership, would/could CGT be payable then or only in the future ?

The ESC D26 article seams to say we can divi up, without CGT, so long as it is equal. Does this mean that it just delays CGT until a future "sale date", so does this somehow "reset" the purchase price to the value at this transfer date?

however, it also indicates that equalization payments (which I suspect we will do) attracts CGT.

Can you explain how that works? Is that CGT payable "now" when we do this and resets purchase price to current asset value?

Expert:  TonyTax replied 2 years ago.
Property 1 Yes.

Property 2 Potentially on change of ownership unless a claim under S225 TCGA 1992is made and accepted by HMRC. If you had three jointly owned properties with equal CGT costs and equal CGT values, you could divide them easily and CGT would be deferred to a future disposal. The inherent gain is effectively held over and deducted from the current value (which becomes the new cost) when the property is eventually sold.

When cash is used to equalise transfers, then CGT may be due for the tax year of transfer depending on the facts and figures.
Customer: replied 2 years ago.

one final clarification!!

so - ....When cash is used to equalise transfers, then CGT may be due for the tax year of transfer depending on the facts and figures.

does this indicate that we should look to equalise these 3 properties between the 4 of us over 3 years to get our CGT allowance in for each year?

Expert:  TonyTax replied 2 years ago.
You can try to do that but with property values changing at different rates, it won't be straightforward.
Customer: replied 2 years ago.

of course there is one more!

the link you sent to tax insider is great.

This is particual looks to be similar to property 1

http://www.taxinsider.co.uk/109-Will_I_Pay_Capital_Gains_Tax_CGT_on_Gifted_Flat.html

should we have paid some CGT when Mum gave us that place, as we didnt??!!

Expert:  TonyTax replied 2 years ago.
There may have been CGT to pay by your late mother in the tax year the property was gifted to you. The CGT rates and reliefs for 2002/03 and 2003/04 can be found here.
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