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TonyTax
TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15946
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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Can I avoid capital gains and taxes if I give my house

Resolved Question:

Hi,
Can I avoid capital gains and taxes if I give my house to my son for free
Submitted: 1 year ago.
Category: Tax
Expert:  TonyTax replied 1 year ago.
Hi. Are you referring to the house you live in?
Customer: replied 1 year ago.
No, at the moment I live in Brazil. I rent my house in London. I bought it 20 years ago at 90k, now it is 500k, and CGT is v high
Customer: replied 1 year ago.
Someone suggested if I stay here in Brazil for 5 years I would avoid CGT. Appears strange
Expert:  TonyTax replied 1 year ago.
I''ll get back to you in the morning with my answer.
Expert:  TonyTax replied 1 year ago.
Thanks. Have you ever lived in it? If so, for how long? How long has it been let? When did you leave the UK?
Customer: replied 1 year ago.
I bought the house 1996 - 20 years ago
I have rented for 5 years
I am here in Brazil for 3 years aprox and before 2 years aprox in the uk.
I want my 18 year son to go to college in the uk for 3 years, then sell the house
So the family will return for 3 years
Then sell my house,
I could postpone this for 2 years if that saves CGT
or could I give the house to my son, pay no inheritance or CGT
Expert:  TonyTax replied 1 year ago.
Thanks. Leave this with me while I draft my answer. It will take a while so please bear with me.
Expert:  TonyTax replied 1 year ago.
I'll deal with the 5 year point first. It used to be the case that, if you returned to the UK within five full tax years after you left (5 years, not tax years, from 6 April 2013) and had sold assets such as property whilst living abroad and which you had owned before leaving the UK, you would be liable to capital gains tax in the tax year of your return on the gain(s) realised whilst you were abroad. As non-UK resident owners of UK residential property have been liable to CGT in the UK on gains made on the disposal of UK residential property since 6 April 2015, such individuals will be caught one way or the other. If you look here and here, you will learn how the new rules for UK property gains made by non-UK resident individuals will be taxed. There are three ways the gain can be calculated and the taxpayer is able to choose the method most advantageous to them but the disposal must occur whilst the owner is non-UK resident for one of the first two methods to apply. The third method is how a UK resident individual would calculate the gain. 1 If you choose to use the rebasing method, the value of the property on 5 April 2015 will take then replace the 1996 purchase price so CGT will only be due on any gain made since 5 April 2015. 2 If you choose to use the time apportionment method, you pay CGT on that part of the gain apportioned to the period from 6 April 2015 to the date of disposal.3 If you choose to use the gain over the whole period of ownership method (the regular method) you pay CGT on the whole gain but taking account of private residence relief and letting relief which you can resd about in HS283.If you give the property to your son, you will be treated as having sold it to him for the open market value as if you had sold it to a stranger and may have CGT to pay depending how the gain is calculated. This would also be a gift for Inheritance Tax purposes, the value of which would remain in your estate for seeven years. Take a look here for information on IHT and here for information on IHT tape relief. I hope this helps but let me know if you have any further questions.
Customer: replied 1 year ago.
Is the best, ***** ***** stay here for 2 more years, making 5 whole tax years, so no CGT. Then sell it to my son for 1 pound. Anything else you can recomend.
thanks
Customer: replied 1 year ago.
sorry I would pay a little CGT, ie on the increase back to 2015.
Expert:  TonyTax replied 1 year ago.
The five years is no longer any good to you as far as UK residential property is concerned. If you sell the UK home while you are non-UK resident, you may have CGT to pay depending on the method of calculation you use. As I said in my answer, the rules changed for disposals of UK residential property for non-UK residents with effect from 6 April 2015. Selling it to your son for £1 won't work. As you and he are "connected persons" for CGT purposes, any sale to him will be deemed to have been done at the open market value of the property, ie you will be treated as having sold it for £500,000 if you sold it to your son today.
Customer: replied 1 year ago.
can i call u on skype
Expert:  TonyTax replied 1 year ago.
I don't use it I'm afraid.
Customer: replied 1 year ago.
then what do u recomend as the cheapest .
2 more years here, pay the difference on the increase since 2015, seems good. I like.
and then sell it to my son for 1 pound. I like. total, just a few k
any other ideas worth considering
Expert:  TonyTax replied 1 year ago.
How long did you live in the property for?
Customer: replied 1 year ago.
aprox 10 years
Expert:  TonyTax replied 1 year ago.
If you sold it whilst being UK resident, you would get a deduction for half the gain (10 years of out of 20) and the last 1.5 years of ownership regardless. That would account for £235,750 (£410,000 / 20 x 11.5). Assuming there is only one owner of the property, you would get letting relief of £40,000. The first £11,100 of what's left would be tax free. That would leave a net taxaqble gain of £123,150 (£410,000 - £235,750 - 40,000 - £11,100). The CGT could be as high as £34,482 (28%) with a maximum of £32,000 beumg taxable at 18% assuming you had no taxable UK income in excess of the personal alloowance. Using the 5 April 2015 value would appear to make sense but the house would have to be sold whilst you are non-UK resident. You don't have to wait five years from when you left the UK to sell it.
Customer: replied 1 year ago.
sorry, i spoke to someone yesterday and paid them. Have i paid u, or can i pay u and ask more questions
Expert:  TonyTax replied 1 year ago.
You left a deposit with just answer. In order for me to be paid, you have to give me a positive rating if you are happy with ther answer.
Customer: replied 1 year ago.
then can I sell it now while I am in Brazil and non resident and only pay CGT back to 2015 , and sell it to my son for 1 pound. only paying on this CGT. i am confused
Expert:  TonyTax replied 1 year ago.
As fas as the UK tax office is concerned, if you sell the house to your son for £1, you will be treated as having sold it for £500,000, its true value, for CGT purposes so the difference between that and the 5 April 2015 value will be your gain. The 5 year rule is often misunderstood. You can sell shares as soon as you move abroad and pay no CGT in the Uk so long you don't return to the UK within 5 years of your move away from the UK. UK residential property is now caught by the post April 2015 rules even if you don't return to the UK ever.
Expert:  TonyTax replied 1 year ago.
As fas as the UK tax office is concerned, if you sell the house to your son for £1, you will be treated as having sold it for £500,000, its true value, for CGT purposes so the difference between that and the 5 April 2015 value will be your gain. The 5 year rule is often misunderstood. You can sell shares as soon as you move abroad and pay no CGT in the UK so long you don't return to the UK within 5 years of your move away from the UK. UK residential property is now caught by the post April 2015 rules even if you don't return to the UK ever.
Customer: replied 1 year ago.
my number 552226471636
can i call you sometimes the land lines here are not good
Customer: replied 1 year ago.
i just checked its not working can i call your landline using my skype
Customer: replied 1 year ago.
1. i was trying to avoid inheritance tax for my son.
IHT might be 50k, cannot afford it, so he would forced to sell the house.
sell the house then CGT , more taxes.
how can i best minimise the taxes.2. he was thinking of going to college in the uk in the next few years.
I would then have to sell the house to pay for this, and buy somewhere smaller.
then live there for 3 years
possibly rent it and move back to Brazilhow would the tax people keep tracks of all thatsorry all a bit complicated.
Expert:  TonyTax replied 1 year ago.
I can only call for an extra charge through just answer but calls to Brazil will be expensive. Let me check what it will cost and I'll get back to you a bit later today.
Expert:  TonyTax replied 1 year ago.
If you survive the gift by seven years the value of that gift will fall out of your estate for IHT purposes. However, after the end of the third year, the potential IHT charge tapers away as you can see here. You could take out a term assurance policy with reducing cover to protect against an IHT liability.You have to keep your own records of gifts and house purchases ans sales etc and be able to answer any questions that HMRC have.
Customer: replied 1 year ago.
I understand most of it. Just this non resident bit seems strange.
So am I definately classed as a non resident. I have been in Brazil for only 3 years.
Expert:  TonyTax replied 1 year ago.
You are non-resident so long as you don't spend too much time in the UK in any one tax year. Check your status using the flowchart here.
Customer: replied 1 year ago.
sorry last question. It says 2013 at the top of the sheet, it is the latest.
seems lucky , everything refers to 3 years , which helps me
Expert:  TonyTax replied 1 year ago.
The statutory residence test came into being on 6 April 2013 and replaced the previous rules, hence the date on the top of the flowchart.
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