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bigduckontax, Accountant
Category: Tax
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Purchased an end of terraced house with a large garden to

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Hi Purchased an end of terraced house with a large garden to the side in 2007 with a mortgage from N/R (interest only).I got planning for one house and built it in 2010 it has been let ever since.The Mortgage with N/R will need to be redeemed shorty.My solicitor is about to spit the land title so the two house will be separate.I hope to remortgage with a BTL mortgage on the original house and put the new house in a family trust, as I can not contract the new house to myself. Would there be any sort of Tax to pay at this stage?
Hello, I am Keith, one of the experts on Just Answer and pleased to be able to help you with your question. Two questions before I can assist you. Firstly how big is the overall site ie is it above or below 0.5 hectare? Secondly have you ever lived in this house as your sole or main domestic residence?
Customer: replied 2 years ago.
Hi Yes it is below 0.5 of a hectare and yes I lived in the original house. Regards ***** *****
As the total area is below the permitted area the whole demense can be disposed of or split without affecting Private Residence Relief (PRR) which relieves Capital Gains Tax at 100%. Once the title is split, however, only one dwelling would be entitled to PRR, the one you live in.
Customer: replied 2 years ago.
Thanks for that,so Capital Gains Tax would be due on the new build only on a sale.Would the cost of the new build and the fees that were spent be deducted from any final Tax bill? If the original house became my sole residence and it was sold there would be no Tax to find is that correct? Many Thanks .
There is CGT on the sale of your sole or main domestic residence Bob, but PRR applies so relieves it at 100%. The second house would have an acquisition value of the building cost. For CGT purposes the gain made on sale would be the net selling price less the acquisition cost. You have an Annual Exempt Amount, (AEA) currently 11.1K to offset this gain. AEA is not cumulative, it is a use it or loose it concession. Unless you lived in this house before or after the letting you do not get Lettings Relief (LR) which is available up to 40K, a pity. I hope that helps.
Customer: replied 2 years ago.
Good Morning Keith. The trust I hope to set up will be an interest in possession trust and as I understand I will still have the income from the let untill I die, are there any Income Tax implication other than the obvious income tax liability?
Regards ***** *****
Here is the Gov UK advice on Tax for the trust yoy propose: 'Interest in possession trusts The trustees are responsible for paying Income Tax at the rates below. Type of incomeIncome Tax rateDividend-type income - 10%All other income - 20%Sometimes the trustees ‘mandate’ income to the beneficiary. This means it goes to them directly instead of being passed through the trustees.If this happens, the beneficiary needs to include this on their Self Assessment tax return and pay tax on it.' That is the position in essence, Bob.
Customer: replied 2 years ago.
I know this may not be in your remit but when the titles are separated and the conveyancing work is completed would there be any stamp duty to pay? Many Thanks Bob Lewis
Probably not as the parties are linked as connected persons. However this is a complex area and HMRC may have to decide if the transfer to a Trust along the lines you intend is linked. The UK Gov web site says: '‘Connected persons’ A connected person could be your relative, eg brother, sister, parent, grandparent, husband, wife or civil partner - or one of their relatives. If the buyer or seller is a business, a connected person would be a business partner and their relatives. It also includes companies and groups of companies who are connected to the business.' which is not exceptionally helpful! Please be so kind as to rate me before you leave the Just Answer site.
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