Discussion
Hi All,
I am already a member here but have logged in under a different username to remain anonymous.
I have a question regarding the property my girlfriend lives in.
It is owned by her mother and uncle who inherited it when her gran died some 10 years ago, my girlfriend has lived in it since then. If my girlfriend moves out and her mum/uncle sell it, will they have to pay CGT on the property? (there is no mortgage)
If so, if they were to gift the property to my girlfriend now, she lives in it for 12months or whatever the minimum is and then sells the property would she have to pay CGT? She could then gift some money to her mum and uncle at a later date.
The property value is also below the inheritance tax threshold.
Is this possible or legal?
Thanks.
I am already a member here but have logged in under a different username to remain anonymous.
I have a question regarding the property my girlfriend lives in.
It is owned by her mother and uncle who inherited it when her gran died some 10 years ago, my girlfriend has lived in it since then. If my girlfriend moves out and her mum/uncle sell it, will they have to pay CGT on the property? (there is no mortgage)
If so, if they were to gift the property to my girlfriend now, she lives in it for 12months or whatever the minimum is and then sells the property would she have to pay CGT? She could then gift some money to her mum and uncle at a later date.
The property value is also below the inheritance tax threshold.
Is this possible or legal?
Thanks.
No problem with the parents gifting the property to their daughter. However, they will probably still have to pay CGT on the transfer to her - which will be deemed to have taken place at market value on the date of the disposal. Paying CGT on a "gifted" property is a pain as there were no cash proceeds on the disposal so any taxes due would have to be paid out of other funds they have in their possession.
It may be wise for them to check out what they should be doing pretty promptly because, as the property has been in their possession over ten years, they will be entitled to Taper Relief on the gain but only if they dispose of it before 5 April 2008.
After 5 April 2008, Taper Relief is being abolished and the gain from the date of aquisition to the date of disposal will be taxed in full.
On the subject of gifting, the parents need to ensure that they don't die within seven years of making the gift.
It may be wise for them to check out what they should be doing pretty promptly because, as the property has been in their possession over ten years, they will be entitled to Taper Relief on the gain but only if they dispose of it before 5 April 2008.
After 5 April 2008, Taper Relief is being abolished and the gain from the date of aquisition to the date of disposal will be taxed in full.
On the subject of gifting, the parents need to ensure that they don't die within seven years of making the gift.
The tax is charged on the "gain", not the property value.
Therefore it would go something like this:
Current Rules:
Sale proceeds (i.e. deemed market value at date house transferred to daughter) less the deemed cost (the market value at the date the house was transfered to the parents on the date they inherited it).
The difference is the Capital Gain.
The gain can be reduced by any capital costs (called enhancement expenditure) that the parents may have spent on the property during the period they owned it.
Fort disposals before 5 April 2008, the gain is then further reduced by the Taper Relief applicable to the period over which they have owned it.
The gain is finally reduced by the Capital Gains Annual allowance (currently £9,200). If the house is jointly owned by both parents, this means £18,400 (i.e. £9,200 x 2) of the gain will be excluded from the calculations.
If the house is transferred before 5 April 2008. the tax payable will be calculated at the top rate of income tax (usually 40% but it may only by 22% depending on the individual's other income during the tax year).
After 5 April 2008 the Taper Relief is no longer claimable. This will mean that the basic taxable gain will be larger (in some cases, much larger). However, instead of paying tax at your top rate of Income Tax, the gain will "only" be taxed at a flat 18% - irresespective of your normal levels of income tax in the year.
Therefore it would go something like this:
Current Rules:
Sale proceeds (i.e. deemed market value at date house transferred to daughter) less the deemed cost (the market value at the date the house was transfered to the parents on the date they inherited it).
The difference is the Capital Gain.
The gain can be reduced by any capital costs (called enhancement expenditure) that the parents may have spent on the property during the period they owned it.
Fort disposals before 5 April 2008, the gain is then further reduced by the Taper Relief applicable to the period over which they have owned it.
The gain is finally reduced by the Capital Gains Annual allowance (currently £9,200). If the house is jointly owned by both parents, this means £18,400 (i.e. £9,200 x 2) of the gain will be excluded from the calculations.
If the house is transferred before 5 April 2008. the tax payable will be calculated at the top rate of income tax (usually 40% but it may only by 22% depending on the individual's other income during the tax year).
After 5 April 2008 the Taper Relief is no longer claimable. This will mean that the basic taxable gain will be larger (in some cases, much larger). However, instead of paying tax at your top rate of Income Tax, the gain will "only" be taxed at a flat 18% - irresespective of your normal levels of income tax in the year.
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