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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15977
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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I would like some advice on whether I would need to pay

Customer Question

I would like some advice on whether I would need to pay any capital gains tax on the following:
In the late seventies my father purchased a freehold property in Wandsworth which consisted of a shop and house together. My father ran the shop and we lived on the premises and it was our family home and business up until 1986. In 1986 my father brought another house in Streatham and we moved out of the property . Both the shop and the house in Wandsworth were let out and my father received the rental income.
In 1995 my father transferred the property in Wandsworth to my brother and I . We were registered as joint owners at the Land Registry . No money was exchanged and it was a gift to us from my father. I am not sure how much the property was worth at that time, possibly in the region of £86 -87k . In 2008, due to marital problems my brother suggested that I give him my share of the property so I transferred my half of the property to him. He is now the sole owner. The property is registered in his name and no money was exchanged. In 2008, when the transfer took place it would have been worth around £350k .
My brother has been managing the property and receiving the rental income from both the house and shop at least since 2000 ( I am not exactly sure about this date as my father ,who is now 89 years old, doesn't remember). Although my brother initially promised to give me half of the rental income from the property, in the 15 years or so that he has been managing it he has not done so. There was a fire at the property in 2011 so it was empty for approx a year . As far as I am aware my brother has paid all the relevant taxes, insurance etc...
The property is now valued at just over 1 million and as I am in financial difficulties I have agreed to sell my share to my brother for £415K. ( even though he is registered as the sole owner )
Could you please advise if I am liable for any capital gains or any other tax on the £415 he proposes to give me and is there any way of reducing the amount of tax ?
I am not sure if this is relevant but I am a lower tax payer. I work part- time earning approx £17,700 per annum.
Many Thanks
Submitted: 2 years ago.
Category: Tax
Expert:  TonyTax replied 2 years ago.
Hi. There are several problems here: 1 The gift of the property from your father to you and your brother was a disposal for CGT purposes (as well as being a potentially exempt transfer for IHT purposes) at its open market value, though if there was a tenant, that would have an impact on the value. Your father's gain if there was one should have been disclosed to HMRC. 2 The gift of your share of the property by you to your brother was a disposal for CGT purposes at its open market value, though if there was a tenant, that would have an impact on the value. Your "paper gain" should have been disclosed to HMRC. If your brother sells the property, he will pay CGT on the gain. That gain will be the disposal proceeds less the sum of the value of the half he was gifted by your father and the half he was gifted by you. I cannot see how HMRC will assess anyone but your brother on the gain. You transferred your share to him legally because of marital problems so you cannot have your cake and eat it. Technically, you don't own any of it. Not only that, you haven't personally disclosed any rental income though that isn't a problem as joint owners of property who are not married to one another can split rental income as they wish for tax purposes. Your brother could make a gift to you of 50% of the post CGT funds which you won't pay tax on. It will simply be a potentially exempt transfer for IHT purposes which will remain in his estate for seven years after making it. As the property is classed as an investment property because your brother doesn't run a business from it, there are no reliefs from CGT other than the annual CGT exemption which is £11,100. There are two rates of CGT, 18% and 28%. The rate or combination of rates that an individual will pay will be dependent on the level of their income in the tax year the gain is made. You need to be careful how you arrange things and I would suggest you and your brother have a local accountant or tax adviser do some calculations and assess the risk of the previous "gifts" coming to light. I hope this clarifies things for you but let me know if you have any further questions.