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I bought a small freehold property on an interest only mortgage,

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I bought a small freehold property on an interest only mortgage, paid for by me, about 6 years ago for £120,000.
Since then my son and daughter in law have been living there rent free.
They have , themselves, carried out and paid for, many improvements including new Central heating, double glazing etc.
I now wish to give the property to them. It is currently worth about £300,000.
What is the CGT situation, please?
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. CGT is a rather nasty tax with a habit of raising its ugly head and biting unexpectedly as it is doing here. You are liable for any gain made on the disposal of the property at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. Your gain is 300K - 120K = 180K. But soft, the 180K purchase price is inflated by the cost of improvements so that will bring the gain down. Without quantifiable data of those costs I cannot be more accurate in my assessment of the CGT payable. If you gift the property to them you create a Potentially Exempt Transfer (PET) in your Inheritance Tax (IHT) account. PETs run off at a taper over seven years and in the event of your decease within that time frame are added back to your estate for IHT and are the first to suffer tax. In the event of your estate being insufficient to pay the tax on the PET then the liability cascades down to the beneficiary for immediate payment. IHT is currently levied at 40% flat rate on all assets over 325K. Changes are in hand which will increase this limit, but will not come into effect for a couple of years yet. I do hope my reply has shed some light on your position. Mortgages are outside the scope of CGT and do not come into the computation.
bigduckontax, Accountant
Category: Tax
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Expert:  bigduckontax replied 1 year ago.
Thank you for your support.

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