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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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In 1988, I jointly purchased and lived in my flat with my single

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In 1988, I jointly purchased and lived in my flat with my single sister which we jointly bought for £40,800. However, in 1992, I left the flat to live with my husband in my marital home which I co-own. My sister continued to live in the flat from 1992 on her own to the present day. I never charged her any rent or received any income during this time or to this day. I paid my share of all improvements and maintenance charges and my share of the mortgage until it was paid off completely in 2013. We have since found out that because my sister has lived in the flat on her own since 1992, I will be charged capital gains tax for every year she continues to live there on her own excluding 18 months via Private Residence Relief and deductions for home improvements. This amount that I will have to pay will be a minimum of £14,000 to about £24,000 increasing with every year she remains in the flat on her own and the flat goes up in value.
My sister only worked part time for the last twenty years of her life with the exception of two years when she was a carer for our sick mother fully supported by myself and her siblings. She does not want to sell the flat (her home) but has no savings due to not working full time for so long and is therefore unable to buy me out at the flat's current market rate of £240,800. Instead, she is offering the following: In order for her to continue living in the flat, that I sign over my share of the flat so that it is in her name exclusively. She will then leave the entire flat to me or my only child who is twenty years old when she dies. She is a fit 64 year old woman. I am only 22 months younger aged 62 years old and also fit. I have found out that if I signed over my flat to my sister, I would still have to pay the tax man the Capital Gains Tax. My sister has said she would pay half the CGT but with no savings and the possible need to buy another home with her share of the flat's proceeds, I do not see how she will do it.
Can you please list the advantages (if any) and all disadvantages for me to this suggestion that I sign over my share of the flat to my sister for no money whatsoever, only the promise that when she dies, the total flat will be left to me or my son?
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi.

Can you tell me if the property is owned as joint tenants or tenants in common please. Which month in 1988 was the flat bought?
Customer: replied 1 year ago.

Hi,

Thanks for your reply.

My sister and I bought the flat in 1988 as owners, not tenants with a long lease at the time. I can't tell you exactly which month we bought the flat but I think it was in the summer of 1988. I already have tax advise about Capital Gains Tax. My question to you concerns the following:

What are the benefits (if any) of me giving my share of the flat to my sister so that she can continue living there indefinitely and the other points clearly stated in my question to you. Please would you re-read my original question regarding all these issues in paragraph two and three and give me your reply concerning them.

Thank you.

Expert:  TonyTax replied 1 year ago.

I did read the question and I will answer it below. For your information, the definitions of joint tenants and tenants in common are here. The reason I asked was because if the property is owned as tenants in common, you can sell your share without your sister's agreement. As joint tenants, you have to act in tandem.

You've summed up your position pretty well. If you give your sister your half of the property, it will be both a disposal for Capital Gains Tax purposes and a gift for Inheritance Tax purposes. So, you will have a CGT liability and possibly no cash to pay it and, should you not live for at least seven years after making it, the value of that gift will remain in your estate for IHT purposes. Of the "gain" you will make, the proportion covered by your occupation of the property and the proportion covered by the last 18 months of ownership will be exempt from CGT. You also have a CGT exemption for the first £11,100 of the net gain.

The only advantage you will get from inheriting the property when your sister dies is that your cost for CGT purposes will be its value when she dies assuming you gift her your half. You could then sell it or give it away tax free before it rises in value again. In the meantime, however, your sister would expect you to give her your half and there is no guarantee that you will survive your sister or that she will leave the property to you or your daughter in her will.

What you could do is to get your sister to agree to a pay you rent for your half of the property so that if it is ever sold, you could claim letting relief which will reduce the taxable gain by a maximum of £40,000 depending on the facts and figures. Take a look here for more information on that. Even a nominal rent will open up letting relief to you.

I hope this clarifies your position but let me know if you have any further questions.

Customer: replied 1 year ago.

Thanks for this information which is very helpful. However, if I were to claim letting relief, would the fact that I have never received any rent or any income at all from my sister from 1992 to the present - 23 years - minimise any claim for letting relief which I might receive 'depending on the facts and figures'? I would not be able to show any regular payments from my sister to me in my bank statements during these years as there has never been any payment made to me by my sister as neither of us was aware of any Capital Gains Issues.

I look forward to your reply.

Expert:  TonyTax replied 1 year ago.

You would get letting relief based on the number of years of letting, clearly not for the period to date. As the gain for the last 18 months of your ownership would be exempt in any event, letting relief would not apply to those months. See example 9 in HS283 here.

Customer: replied 1 year ago.

Therefore, can you confirm that if my sister starting paying me a nominal rent from now on, this would open up further letting relief and reduce the final Capital Gains Charge?

Also,what would you consider a 'nominal' but acceptable rental charge per month to satisfy a future tax assessor?

Expert:  TonyTax replied 1 year ago.
It would not be further letting relief as to date there has been no letting.

I cannot predict what HMRC would accept but the fact is that the legislation does not mention actual payment of rent, just that it is let as residential accommodation. Take a look near the bottom of the page here.
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