Capital Gains Tax Question

Capital Gains Tax Question

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romeogolf

Original Poster:

2,056 posts

118 months

Friday 5th February 2016
quotequote all
Purchased property in 2009 for £143,000 in joint names - 50/50.

In 2015 equity from one buyer was transferred to the second. Value of property estimated at £220,000.

If the current owner chooses to sell in the future, is the CGT calculated on the original 2009 price, or is it more complicated based on the value when the second half was transferred etc?

I'm not likely to sell for at least 5 years, but curious as to how this is calculated.

Thanks.

audidoody

8,595 posts

255 months

Friday 5th February 2016
quotequote all
Presumably this is a second home as there is no CGT on a main residence. I think you'll find the gain is calculated from the date that the Land Registry recorded the name (whether in joint ownership of not).

When the equity was transferred to the second buyer the second buyer may have been liable for stamp duty based on their share of the outstanding mortgage.

Edited by audidoody on Friday 5th February 10:51

romeogolf

Original Poster:

2,056 posts

118 months

Friday 5th February 2016
quotequote all
audidoody said:
Presumably this is a second home as there is no CGT on a main residence. I think you'll find the gain is calculated from the date that the Land Registry recorded the name (whether in joint ownership of not).
At the time of purchase it was the only property in my name (primary residence being in my parents' house). At time of transfer it was also my only owned property as I am a private tenant elsewhere. I'm in the process of purchasing two further properties, however my main home will still be as a private tenant elsewhere.

uknick

880 posts

183 months

Friday 5th February 2016
quotequote all
Assuming it's still not your principal residence you will pay CGT when you sell it.

The gain will be calculated in two chunks; the gain on the portion you have always owned and the gain on the portion you acquired in 2015.

From what you have said as to the increase in value, if it wasn't a spousal transfer did the previous owner paid any CGT due when you bought them out? I raise this because HMRC might check into the previous transfer of equity.

romeogolf

Original Poster:

2,056 posts

118 months

Friday 5th February 2016
quotequote all
uknick said:
From what you have said as to the increase in value, if it wasn't a spousal transfer did the previous owner paid any CGT due when you bought them out? I raise this because HMRC might check into the previous transfer of equity.
I didn't buy him out as such, it was given to me. There was no transfer of money.

uknick

880 posts

183 months

Friday 5th February 2016
quotequote all
Doesn't matter if there was no exchange of cash/consideration. HMRC will deem the transfer to be done at market value, unless you can prove why it shouldn't be. Off the top of my head I cant think of any reason though.

This is an issue all the time when family members who aren't covered by the spousal transfer rules give away assets to each other.

The person making the transfer may be able to avoid a CGT liability if they can prove they were not the beneficial owner of the property. But, this will require correspondence with HMRC.

How did you present the transfer value on the Land Registry documents?



Ozzie Osmond

21,189 posts

245 months

Friday 5th February 2016
quotequote all
romeogolf said:
I didn't buy him out as such, it was given to me. There was no transfer of money.
In which case no stamp duty will have been paid at the time of that transfer but HMRC will nonetheless have received a "nil" return for their records. It's very easy for HMCRs big computer to follow up on this stuff next time they see the property change hands (when another Stamp Duty return is filed) so make sure you get it right. The guidance from uknick looks on the button to me.

HMRC's big computer knows exactly what's going on - for instance in a street of terraced houses it's easy for the computer to spot whether one changes hands at a "funny" price. So for the valuation you use at the date of gift you must be sure to use a sensible figure.

romeogolf

Original Poster:

2,056 posts

118 months

Friday 5th February 2016
quotequote all
uknick said:
How did you present the transfer value on the Land Registry documents?
We indicated the current value was £220,000 with no money changing hands for the transfer.

Jon39

12,782 posts

142 months

Friday 5th February 2016
quotequote all

Adding to what has already been said;
The CGT due by the previous half owner is calculated roughly as follows;

2009
£143,000 + Purchase costs, divided by 2. Say about £75,000.
2015
£220,000 - Disposal costs divided by 2. Say about £105,000.
The gain by the other person was therefore about £30,000.

CGT is due on about £30,000, less that persons remaining CGT allowance for that tax year.

Do others agree with this basis?



Edited by Jon39 on Friday 5th February 14:49

Alpinestars

13,954 posts

243 months

Friday 5th February 2016
quotequote all
There's not enough info here to give advice.

Was the person who "gifted" half of the property a connected person? Broadly family?

If yes, s18 applies. They will have made a disposal at market value, and your base cost in that half of the property will be the market value. On a future disposal, the gain will be equal to the proceeds, less your share of the original cost, less the market value of the half "gifted" to you.

If the transferor is not a connected person, there is no market value substitution. Your base cost is your half share of the original cost, and the transferor has no gain at the time of the "gift" (he/she has a capital loss).

In either case there is no stamp duty, as this is payable on consideration given, and there appears to be none, unless you took on the transferors mortgage?

Edited by Alpinestars on Friday 5th February 20:28

romeogolf

Original Poster:

2,056 posts

118 months

Friday 5th February 2016
quotequote all
Thanks for the replies. Have been in touch with an accountant I know through work who's going to sort it out for me.

CoolHands

18,496 posts

194 months

Friday 5th February 2016
quotequote all
How do hmrc know to ask you for cgt?

Jon39

12,782 posts

142 months

Friday 5th February 2016
quotequote all

CoolHands said:
How do hmrc know to ask you for cgt?

We can now all look at details of property sales, but HMRC probably have a direct link to the Land Registry, and can spot a non main residence, or a let property.

If you perhaps sell a painting at a profit, then I have no idea.



Eric Mc

121,784 posts

264 months

Friday 5th February 2016
quotequote all
CoolHands said:
How do hmrc know to ask you for cgt?
You have a legal obligation to report the fact that you have made a Capital Gain. Failure to do so is an offence.