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bigduckontax, Accountant
Category: Tax
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We have two Homes . We are married to one another have been

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We have two Homes . We are married to one another have been for 54 years . We lived in our first Home in Hornchurch for 20 +years .This home was bought for £101,000 (1989 ). It is now worth approximately £350,000+.We spent on Hornchurch by putting fitted wardrobes , a new fitted kitchen , Bathroom , and half Bathroom , conservatory etc. It all cost in the region of £40,000
We acquired another home in CanveyIsland . It was left to us . MY husband put Canvey as our first home as our son got divorced and had nowhere to live . We let him live near his children in Hornchurch as his marital home was in Romford Essex.
Canvey is now worth £ 290,000 . We spent £70,000 on it seven years ago adding an extension .Our son would like to buy Hornchurch when he gets paid out from his own home . We have two sons . What can we do to avoid Capital Gains Tax . We had to help our son and now we are in a real fix . Which is the best way forward .
Mr and Mrs E XXXXXX
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. I have to tell you that Benjamin Franklin's adage that in life there are but two certainties, death and taxes has struck again. You will be liable for Capital Gains Tax (CGT) on the gain made on your Hornchurch home as you elected to have Canvey as the property to which Private Residence Relief (PRR) would apply. PRR relieves CGT at 100%. The gain on your Hornchurch property is 350K [less selling costs] - 101K - 40K = 209K. PRR will apply up to the point you elected Canvey. Unfortunately your question is silent on this so let us assume the 20 years so 34 / 54 = say 63%. 63% of 209K is say 132K, 66K each. This will be taxed at 18% or 28% or a combination of the two rates depending on the individuals' income including the gain in the tax year of sale. You have one tranche of 11.1K Annual Exempt Amount (AEA) to offset the gain so actually only 121K will be exposed to CGT. If your son paid rent then you would also be entitled to Lettings Relief (LR) up to 40K to further offset the gain. Worst case scenario is a tax bill of a tad under 34K. I am so sorry to have to rain on your parade.
Customer: replied 2 years ago.
Thank You for your reply . Yes Our son pays £500 PCM . Can we either get equity release on our second home ,make it over to our sons or put it in trust for our Grandchildren . Which would you recommend . HM sticky situation . We worked all our lives and paid all our Taxes etc . How much would we have to pay anyway ?
If you use equity release you merely loose your property long term to the release provider and have nothing to leave. If you retain it then on death there is no CGT, but the value is taken into account for Inheritance Tax (IHT) purposes and any assets over 325K are taxed at a flat rate 40%. The 325K is inflated by any charitable or inter spousal bequests and on the death of the second partner any unused 325K from the earlier death can be added making a possible 650K to offset IHT. Putting property in trust could leave the whole caper in the hands of Trustees and be an expensive route to take and a Trust's AEA is 5.55K. I have told you already that the worst case scenario is a CGT tax bill of some 34K if you sell. Whichever way the cat jumps it will be deemed a disposal and CGT apply. However, I can recalculate your exposure. The last 18 months of ownership do not count and you are deemed to be resident even if this is not the case. This drops the percentage to say 60.2 so 126K is the gain. Take off 11.1K (AEA) and LR 40K leaves say 75K, worst case scenario is now a tax bill of say 21K. Better than the proverbial poke in the eye with a sharp stick. I recall one case when a man bought his son a house to attend University. It was in the parent's name and he gave it to the son on graduation. It cost him 31K in CGT! Please be so kind as to rate me before you leave the just Answer site.
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Customer: replied 2 years ago.
Thank You so much . We think you are a pretty smart Chap . We think 99% would be fitting . You have helped us a great Deal Thanks Once again .
Margaret & Edward Fearne
Delighted to have been of assistance.
Sorry for my initial error, I missed the 1989 acquisition date!
Thank you for your support.