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TonyTax, Tax Consultant
Category: Tax
Satisfied Customers: 15975
Experience:  Inc Tax, CGT, Corp Tax, IHT, VAT.
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In 2012 my sister was ill and moved in with me and my husband.

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Hi, In 2012 my sister was ill and moved in with me and my husband. She has a small ill health retirement pension as a result of a stroke she suffered many years ago but she was no longer able to work to supplement the pension and couldn't meet her outgoings. She didn't want to loose her family home so her flat was transferred to me and I took on the mortgage with the aim of renting the property until she was able to return to it. The property was transferred at the value of the outstanding mortgage £60k. We subsequently agreed that her son and his partner could move in. They paid the rent and council tax for the year to December 2013. It became clear that my sister was unlikely to be fit enough to work so we agreed, in early 2014 to put the flat on the market so that she could buy a smaller property without a mortgage. Her daughter and her partner moved in pending the sale of the house and paid about three months rent over that time. The property was eventually sold in October 2014 with contract exchange on 9 January 2015. The property was valued at £140k and sold for £135k. I transferred the balance of the sale (after mortgage and sales costs) to my sister and she has now bought and is living in a one bedroom flat. My concern is that I am exposed to a capital gains tax bill as the original property transfer value was based on the mortgage rather than the value of the property at the time of the transfer. I have been told that because of our family relationship the transaction would be treated as if it had taken place at the market value of the property but I am not certain about this and I am unclear on how this should be presented in my tax return. I would be grateful for your advice.
Hi. When the property was transferred/gifted to you by your sister, as the two of you are "connected" for CGT purposes, your purchase price will be deemed to be the open market value of the property at the time of that transfer. So, the gain on the disposal wll be the disposal proceeds less the open market value at the time it was transferred to you less the costs of selling it (legal fees, selling agent fees etc.). In the SA108 pages here, the disposal proceeds go into box 31 and the sum of the cost/market value and selling costs go into box 32. You need to put an X in box 36 that says you are using a valuation for the "cost" of the property. I hope this helps but let me know if you have any further questions.
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