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bigduckontax
bigduckontax, Accountant
Category: Tax
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I am currently living in a property that my parents own

Customer Question

Hi, I am currently living in a property that my parents own (Property A); I am their daughter and currently do no work (since September 2014) and therefore do not pay tax. The property is registered in my parents name but essentially it is my property. Price pay approx £456k, current value approx £550k.
They also have a property that the live in which is their main residence (Property B).
They have recently sold their main residence and will be buying another property shortly.
I have also been considering selling Property A (with their authority). Because they have sold Property B, I thought it would be better to transfer Property A into my name before selling, however what exactly would the CGT implications be? I understand the tax paid is the difference of the price paid and current value and that I could apply my basic tax allowance etc.
What is the most tax efficient way to potentially sell Property A without either I or my parents being clobbered by tax? Could they sell Property A in their name with no real implications if Property B is now sold?
Many thanks
Submitted: 1 year ago.
Category: Tax
Expert:  bigduckontax replied 1 year ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. Property B is the property to which your parents currently base their entitlement to Private Residence Relief (PRR). Property A is a second home. Your occupation is an irrelevance and in tax law it is not your property. Thus when Property A is disposed of any gain will be chargeable to Capital Gains Tax (CGT) in your parents' account. This tax will be on the gain of 550K - 456K = 94K, divide by 2 gives 47K each. Deduct the Annual Exempt Amount (AEA) of 11.1K leaves 35.9K exposed to CGT. This will be taxed at 18% or 38% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale; worst case scenario is a bill of say 10K each. Any transfer of Property A to you would trigger a CGT laibility so that route is closed. CGT is a thoroughly nasty tax which tends to rear its head and bite quite unexpectedly. Your parents have been well and truly caught by Benjamin Franklin's dictum that in life there are but two certainties, death and taxes. I am so sorry to have to rain on your parade.
Customer: replied 1 year ago.

Hi Keith,

Many thanks for for your email.

Can I please confirm just clarify the 7 year rule gift and the tax implications there? Is this not a viable option?

Many thanks

Loretta

Expert:  bigduckontax replied 1 year ago.
If the property is given to you it will be deemed a disposal and your parents still liable to CGT on the gain, the difference between the current market price as at transfer date and the original cost plus any improvements. I regret, Loretta, it is Benjamin Franklin again. Where a gift is involved it creates a Potentially Exempt Transfer (PET) in the Inheritance Tax (IHT) affairs of the donor. PETs run off at a taper over seven years. In the event of a decease within this period the PET is added back to the deceased's estate and is the first to suffer IHT. If the estate is insufficient to meet the IHT on the PET the liability cascades down to the beneficiary for immediate payment. IHT does not, of course, kick in until an estate reaches 325K. Please be so kind as to rate me before you leave the Just Answer site.

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