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: 3815
Experience:  FCCA FCMA CGMA ACIS
75394688
Type Your Tax Question Here...
bigduckontax is online now

Sam Tax Myself and husband purchased a house

Customer Question

Hi Sam Tax
Myself and husband purchased a house for our daughter to use whilst at university we took a mortgage against our main residence. We put the house in her name. It cost £60,000 and she lived in it till 2004. At this time she did a deed of gift to me and we have let the house from 2004 till 2009. We lived at the property from 2009 to 2011. From 2011 to 2015 we have let the house. The estimated sale price is £135,000. What would be the implication of CGT. ps.(All earnings on the letting have been declared to HMRC on self assessment.)
Please advise
Regards
Sue Morgans
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello Sue, I am Keith, one of the experts on Just Answer, and pleased to be able to assist you with your question. Firstly, you need a valuation of the house as at 2004 when she gifted the residence to you. For the period 2004 - 2009 you have no entitlement to Lettings Relief (LR) as you did not occupy before letting. Now for the time with a wet towel round the head and the backs of a number of envelopes to work out the CGT position. I cannot do this exactly for you as it is done in months. Take the total ownership period. Take the let periods. From the let periods deduct 18 months as you are deemed to be in residence even if this is not the case. Deduct the adjusted let period from the total ownership period. This will give you the ratio of the proportion of the gain which will be subject to CGT. Take the 2004 value plus any improvements since that date eg installation of double glazing, central heating, extensions but not routine repairs which are allowable against rental income at appropriate periods to determine an acquisition price. Take the net selling price ie after deducting estate agents,' solicitors,' fees advertising etc.and deduct the acquisition price. That gives you the gain. Then apply the time factor to derive the proportion of the gain exposed to CGT, divide by 2 [Joint Tenancy] and deduct your Annual Exempt Amount (AEA) of 11.1K. Instead of AEA you could be entitled to LR up to 40K for the rental income 2011 - 15. The balance would be taxed at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale. Still with me? Simple,. as the Meerkat in the TV advert would say. Your first problem will be deriving the 2004 value as that is the base for all the CGT computations. I do hope that my reply has shed some light on your position.
Customer: replied 2 years ago.

Hi Keith

Thanks for your answer I will have to go through my records to check the months the house was let. I do not have a valuation at 2004 will HMRC accept figures of passed sales of similar houses in the same street which I can check out on net house prices web site? How does LR work?

The most important thing is we are trying to limit the amount of CGT our daughter has to pay and would prefer the CGT to by paid by us.

Regards

Sue

Expert:  bigduckontax replied 2 years ago.

Yes Sue, usually this is acceptable as a means of assessing value. Actually they may bring into play the Valuation Office Agency, part of HMRC, which is mainly responsible for setting levels for council tax and business rates and they would use the same system as they have details of all landed property transactions.

You daughter has no CGT liability in any event. The house was in her name whilst she was in occupation and thus she would be entitled to Private Residence Relief which relieves CGT at 100%. She gave it to you more than seven years ago so that Potentially Exempt Transfer (PET) for Inheritance Tax purposes in her estate has gone and the PET extinct. The same applies to your original purchase of the house for her when you put it in her name.

The only people laible to CGT are you and I have explained the system.

Please be so kind as to rate me befoe you leave the Just Answer site.

Regards

Keith

Customer: replied 2 years ago.

Hi Keith

Sorry I have not got back to you sooner I have been tied up and not able to check my email. Thank you for being so patient with me.

One last question, the house is in mine name at the moment, would it be tax efficient to change from single to joint ownership with my husband.

Regards

Sue

Expert:  bigduckontax replied 2 years ago.

It would have been had you done this when your daughter gifted the house to you. The pair of you would have each had a half gain, both would have AEA so the ultimate CGT bill would have been lower.

Switching now will merely cost you conveyancing fees.

Please don't forget my rating

Customer: replied 2 years ago.

Hi keith

Thanks very much for such a prompt reply. I have been very pleased with your information and will rate you excellent.

Thanks again

Sue

Expert:  bigduckontax replied 2 years ago.
Delighted to have been of assistance, Sue.
bigduckontax and other Tax Specialists are ready to help you
Expert:  bigduckontax replied 2 years ago.

Thank you for your excellent support.

Related Tax Questions