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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15940
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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A query - my ex-husband is aged 68 and is proposing

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Hello,
A query - my ex-husband is aged 68 and is proposing to sell his flat (which he owns outright and which is worth around £585,000) to our only son, who currently lives there with his girlfriend. The price he proposes is £100,000 (which is £50,000 paid now and £50,000 paid in 3 years time if my son has the money). I am worried that this is an intervivos gift at an undervalue (realistically the price is £50,000.
What is the position if my ex dies within 7 years - I know there is tapered relief (my ex's total estate is worth around £585,000 flat, plus £70k for the house he now lives in plus £35k for a house we jointly own). I realise my son will have a substantial IHT bill to pay but wonder whether you can give any advice on the validity of this deal (I suspect it is one of my ex's 'dodgy deals' to get my son's money from him). I would value your opinion. My son would inherit the flat when my ex dies anyway, he is the only son.
Many thanks
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi.
There is nothing illegal about selling a property to anybody at a price less than the true market value any more than there is by making an outright gift of a property. However, if the property is sold by your ex-husband to his son at less than the open market value, he will be treated as having sold it at its open market value with potential Capital Gains Tax consequences for him and not necessarily the cash to pay the CGT.
The sale will also have an element of gift about it, the difference between the open market value and the price paid by your son. Should your ex-husband not live for seven years from the date of the gift, then its (the gift's) value will remain in his estate for IHT purposes and your son may be asked to pay the IHT liability which will start to taper away three years plus after the gift. There is information on that here:
http://taxaid.org.uk/guides/information/other-taxes-you-may-need-to-know-about/inheritance-tax/828-2/taper-relief-for-lifetime-gifts
I hope this helps but let me know if you have nay further questions.
Customer: replied 2 years ago.
Thank you - I am a bit unclear about the CGT. Who will need to pay the CGT - my ex or my son. Do you have any idea how much this might be ? I understand about the IHT but when will be payable? When my ex dies? This is very helpful.
Expert:  TonyTax replied 2 years ago.
IHT becomes payable six months after death.
CGT will be payable by your ex-husband if he makes a gain, albeit a largely paper one, when he sells the property to your son. As your ex-husband and your son are connected for tax purposes, the gain is calculated by taking the open market value (not the sale price) and deducting from it the purchase price, the costs of any improvements and the sum of purchase and selling costs such as legal fees, stamp duty, survey fees, selling agent fees etc. The first £11,100 of gains an individual makes in the current tax year will be tax free.
If the property has ever been your ex-husband's main home, then he will be entitled to some main residence relief which will reduce the gain. If it has been let as well as having been his main home at some point then he will also qualify for letting relief of up to £40,000. Take a look at HS283 (link below) for information on CGT and the main residence.
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief
There are two rates of CGT, 18% and 28%. The rate or combination of rates that an individual pays depends on the sum of their income and the gain. Take a look here for information on how to calculate the applicable CGT rate:
https://www.gov.uk/capital-gains-tax/work-out-your-capital-gains-tax-rate
CGT is payable on 31 January following the end of the tax year in which the gain arises.
TonyTax and other Tax Specialists are ready to help you
Expert:  TonyTax replied 2 years ago.
Thanks for accepting my answer.