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taxadvisor.uk
taxadvisor.uk, Chartered Certified Accountant
Category: Tax
Satisfied Customers: 4983
Experience:  FCCA - over 35 years experience as a qualified accountant (UK based Practitioner)
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I wonder if you can give me some advice on property tax.. I

Customer Question

I wonder if you can give me some advice on property tax..
I plan to demolish my mothers house and build a new house on the land
using my money (son)
I will either use finance from selling my main residence to build the new property on her
land currently and become joint owner with her on the deeds ..
or when I am the joint owner raise finance against the land to build the new house and retain my exsisting property and let it.. what are the tax liabilities assuming the above
Submitted: 2 years ago.
Category: Tax
Expert:  taxadvisor.uk replied 2 years ago.
Hello and welcome to the site. Thank you for your question.

Please clarify for me -
Are you making any payment to your mother for the acquisition of her property as it stands.

Who will be residing in the new property when built?

Many thanks
Customer: replied 2 years ago.

no no payment but I plan to pay for the newbuild property to incorporate an annex for my mother on her land

Expert:  taxadvisor.uk replied 2 years ago.
Thank you for your reply.

Your question is concerning tax liabilities if the aforementioned scenarios take place

As you would become a joint owner of land/property and the title deed would reflect it, any gain made on transfer of interest to you by your mother albeit chargeable to CGT would be covered by private residence relief for her CGT purposes.

If there is no consideration, then the value of your share would be deemed a gift as a potentially exempt transfer for IHT purposes as far as your mother is concerned. The seven year rule applies to PETs..if she survives for 7 years after making the gift, the gift is out of scope for IHT purposes..i.e, tax exempt.

More information on gifts and implication on IHT can be found here

http://www.which.co.uk/money/tax/guides/inheritance-tax-explained/inheritance-tax-planning-and-tax-free-gifts/

Any gain you make from selling your property to fund this project would be covered by private residence relief as it is your main residence.

If you were to opt for external financing for this project and retain your own property for letting purposes, then you would qualify for PRR partially, to cover the period the property was your main residence as opposed to total period of ownership.

If the property is let during that time, you would be able to claim letting relief for period let.
The final 18 months of ownership always qualifies provided the property has been your main residence at some point during period of ownership.

More information on private residence relief is covered in HMRC helpsheet hs283 here (please look at how the relief works)
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief

I hope this is helpful and answers your question.

If you have any other questions, please ask me before you rate my service – I’ll be happy to respond.