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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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I fully understand my CGT liability on disposal of a second

Customer Question

I fully understand my CGT liability on disposal of a second home that has been rented to my adult son. I cannot find guidance on disposal liability when that property is gifted over a period of time. Would CGT be owed on the entire value of the property less acquisition costs etc, or only on the portion still retained by me. In this instance my son now owns 3/7 of the property leaving me with 4/7. In order to make him the majority owner I wish to gift him a further 1/7 and need to know if I therefore can reduce my CGT based on 4/7 of the value or still need to base my self assessment return on the whole. Thanks
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. If you gift a property to your son in one go, it will be treated as a disposal at the open market value at the time of the gift as you and your son are "connected" and you would deduct 100% of the cost to work out the gain or loss. If you gift it over time, then you will need to value the property each time you give away a tranch and use the value of that tranch as your disposal proceeds. If you give away 1/7th of the property, you would only use 1/7th of the cost against the disposal proceeds of that 1/7th to work out the gain or the loss. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
I understand that but do I need to work out my liability on the entire 1/7th or only the remaining amount I effectively own on that 7th? Thanks
Customer: replied 1 year ago.
08/01/2016 07:18
I understand that but do I need to work out my liability on the entire 1/7th or only the remaining amount I effectively own on that 7th? Thanks
Expert:  TonyTax replied 1 year ago.
You only pay CGT when you dispose of or gift an asset. Assuming you will still own 3/7ths of the property after gifting another 1/7th, then you have not disposed of 3/7ths so you would not work out the gain on that part, just on the 1/7th. If you gift the remaining 3/7ths in one go, then you will disclose the gain or loss in your tax return for the tax year you gifted it, certainly not before.
Customer: replied 1 year ago.
The numbers are not small so I really need to get to grips with this. The total current value of the property is £490k therefore the 1/7th is £70k. My full liability is therefore £70k minus acquisition and other expenses etc of £38k leaving me to pay on £32k before my CGT tax allowance of £11k i.e payment on £21k. OR do I only pay on 4/7 of that (i.e £12k) which is all I own of the property prior to the new 1/7th disposal. A difference of CGT owed on £9k dependent on the answer! Clearly a significant difference. Thanks
Expert:  TonyTax replied 1 year ago.
You currently own 4/7ths of a property worth £490,000.
If you gift a further 1/7 of the property to your son, then your disposal proceeds will be £70,000 (£490,000 / 7). Alternatively, your 4/7ths are worth £280,000 and you are gifting a quarter of that to your son which is worth £70,000 so your disposal proceeds are still £70,000 (£490,000 / 7 x 4 (/4)).
It depends on what proportion of the property you want to be left with after the next disposal. You say that you want your son to be the majority stakeholder so that means you need to give him one quarter of what you still own which equates to 25% of what you still own or 1/7th of the whole property.
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15840
Experience: Inc Tax, CGT, Corp Tax, IHT, VAT.
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Customer: replied 1 year ago.
Thanks, ***** ***** might not get my CGT liability reduced any further but needed confirmation. Goodbye
Expert:  TonyTax replied 1 year ago.
Thanks.

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