Can you confirm that the flat has always been jointly owned between you and your son? Is your name on the title deeds as well as your son's? If that is the case, will you be taking 50% of any gain that may be made on the disposal of the flat? Did he live there from November 2005 to the time in 2012 when he moved away for job purposes? When in 2012 was that exactly? Was it his job at the time that made him move away? Was that still in the UK? Is he likely to return to live in the flat? Is it still let? Can you confirm that you never lived in the property? What was the cost of the flat? How much is it worth now?
How far away is the flat from the job location in South London?
Leave this with me while I draft my answer.
You might refer to HS283 which deals with the man residence and CGT.
Your son may have qualified for absence relief as it is impractical for him to live in Watford and work as a paramedic in South London on shifts. However, he would need to re-occupy the property before selling it to qualify for that relief. He could try to claim that his job still prevents him from living in Watford but as he can claim letting relief instead, there is no need. His CGT position is as follows:
Gain £41,000 (£220,000 - £138,000 / 2)
Total period of ownership: 133 months (to November 2016 say)
Total period of owner occupation: 81 months
Total period of letting: 52 months
Exempt gain: £30,519 (£41,000 / 133 x 99 (81 months + last 18 months)
Non-exempt gain: £10,481 (£41,000 / 133 x 34 (52 months - last 18 months)
Letting relief: £10,481 (lesser of £40,000, £30,519 and £10,481)
Net taxable gain: £0
Your son should have no CGT to pay.
The only relief you will qualify for is the annual CGT exemption of £11,100 so you will have a net taxable gain of £29,900 (£41,000 - £11,100). There are two rates of CGT on residential property, 18% and 28%. The rate or combination of those two rates that you will pay will be dependent on the level of your income in the tax year the flat is sold. So, the CGT cannot exceed £8,372 (28%). That would be the case if your gross income was £43,000 or more.
I hope this helps but let me know if you have any further questions.
As father and son, you can choose how to split the rental income for tax purposes regardless of the ownership proportions of the property.
You both need to disclose your respective shares of the gain, albeit that your son will have no CGT liability. He should use form SA1 to register for self-assessment. You will have a CGT liability. If your income was £40,000, for example, then £3,000 of your net taxable gain would be liable to CGT at 18% (£43,000 - £40,000 with the balance being taxable at 28%. If your income alone is £43,000 or more, then you will pay CGT at 28% on the whole of the net taxable gain unless you make personal pension contributions which would serve to extend your basic rate tax band.
The excess letting expenses cannot be deducted from the gain.
As I said in my last post, if your income (excluding the gain) is £43,000 or more, you should pay CGT at 28%. However, personal pension contributions will reduce your income for tax purposes and that may mean you may pay some CGT at 18%.
All your taxable income is taken into account in determining what rate or rates of CGT you pay. If the pension contributions you are making are taken off your pay, then your income from that source will automatically be reduced for tax purposes. If you make pension contributions direct to a pension scheme of your own, then they would need to be taken into account in the calculation of your income for CGT purposes.
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