Property related CGT question
Discussion
Imagine if someone was gifted a modest but not unattractive 2 bed terrace house in the SE in the early 1980’s, worth approximately £25,000. It had a sitting tenant in and rental income was paid and taxed as normal.
In 2011 the ownership of that house was wholly transferred to the owner’s wife. The same tenant remained and the rental income was now paid to the new owner (wife). At that time it was worth approximately £170,000. No CGT paid as it was transferred between spouses.
Now the same sitting tenant has moved out due to ill health and will not return, so the owner (and her husband) are considering selling the property. It is now worth approximately £270,000.
Can anyone say what the CGT implications are for either, or both, the original owner and their wife the current owner? Thank you.
In 2011 the ownership of that house was wholly transferred to the owner’s wife. The same tenant remained and the rental income was now paid to the new owner (wife). At that time it was worth approximately £170,000. No CGT paid as it was transferred between spouses.
Now the same sitting tenant has moved out due to ill health and will not return, so the owner (and her husband) are considering selling the property. It is now worth approximately £270,000.
Can anyone say what the CGT implications are for either, or both, the original owner and their wife the current owner? Thank you.
I think it’s either 18% or 28% CGT depending on income tax band and will be on the whole gain less CGT allowance of circa £12k. I don’t know for sure but it would make sense that the transfer is irrelevant for CGT otherwise everyone would do it to minimise CGT. It’s a chunk of change…..
From gov.uk
gov.uk said:
Your spouse or civil partner may have to pay tax on any gain if they later dispose of the asset.
Their gain will be calculated on the difference in value between when you first owned the asset and when they disposed of it.
If this was before April 1982, your spouse or civil partner should work out their gain using the market value on 31 March 1982 instead.
They should keep a record of what you paid for the asset.
Their gain will be calculated on the difference in value between when you first owned the asset and when they disposed of it.
If this was before April 1982, your spouse or civil partner should work out their gain using the market value on 31 March 1982 instead.
They should keep a record of what you paid for the asset.
This would seem to agree with the above post (there are plenty of other links if you search):
https://www.scholesca.co.uk/blog/capital-gains-tax...
She didn't pay CGT when it was transferred, but she inherits the original base cost of £25,000.
https://www.scholesca.co.uk/blog/capital-gains-tax...
She didn't pay CGT when it was transferred, but she inherits the original base cost of £25,000.
Although Capital Gains Tax on residential has two separate tax bands, how the gain is split between the two bands is determined by looking at the other income (salaries, business profits, rental income, pension income etc) of the tax payer as that needs to be added to the gain.
The "base cost" of the property will be £25,000 so the basic gain will be the sale proceeds less that original base cost.
Other costs are allowed to increase the base cost, such as legal fees, sale or purchase fees, stamp duties originally paid, enhancement expenditure etc.
As the property is entirely in the name of one person, only that person's CGT Annual Allowance can be utilised. This is currently set at £12,300.
It might be worth considering another interspousal property transfer - this time consisting of half of the property. This would have two significant effects. Firstly, it means the other person's CGT allowance can now be utilised and it also might make better use of the lower and higher CGT tax bands. The latter can only be determined by doing some calculations.
Finally, you need to be aware that the disposal of residential property has a much tougher and tighter reporting and payment regime compared to just over a year ago. Essentially, the taxpayer has 30 days from the completion date of the property to both report AND PAY the CGT to HMRC.
The "base cost" of the property will be £25,000 so the basic gain will be the sale proceeds less that original base cost.
Other costs are allowed to increase the base cost, such as legal fees, sale or purchase fees, stamp duties originally paid, enhancement expenditure etc.
As the property is entirely in the name of one person, only that person's CGT Annual Allowance can be utilised. This is currently set at £12,300.
It might be worth considering another interspousal property transfer - this time consisting of half of the property. This would have two significant effects. Firstly, it means the other person's CGT allowance can now be utilised and it also might make better use of the lower and higher CGT tax bands. The latter can only be determined by doing some calculations.
Finally, you need to be aware that the disposal of residential property has a much tougher and tighter reporting and payment regime compared to just over a year ago. Essentially, the taxpayer has 30 days from the completion date of the property to both report AND PAY the CGT to HMRC.
Eric Mc said:
Although Capital Gains Tax on residential has two separate tax bands, how the gain is split between the two bands is determined by looking at the other income (salaries, business profits, rental income, pension income etc) of the tax payer as that needs to be added to the gain.
The "base cost" of the property will be £25,000 so the basic gain will be the sale proceeds less that original base cost.
Other costs are allowed to increase the base cost, such as legal fees, sale or purchase fees, stamp duties originally paid, enhancement expenditure etc.
As the property is entirely in the name of one person, only that person's CGT Annual Allowance can be utilised. This is currently set at £12,300.
It might be worth considering another interspousal property transfer - this time consisting of half of the property. This would have two significant effects. Firstly, it means the other person's CGT allowance can now be utilised and it also might make better use of the lower and higher CGT tax bands. The latter can only be determined by doing some calculations.
Finally, you need to be aware that the disposal of residential property has a much tougher and tighter reporting and payment regime compared to just over a year ago. Essentially, the taxpayer has 30 days from the completion date of the property to both report AND PAY the CGT to HMRC.
Eric you are a Star ! Im sure we all appreciate the time you put in to give good insight from your knowledge.The "base cost" of the property will be £25,000 so the basic gain will be the sale proceeds less that original base cost.
Other costs are allowed to increase the base cost, such as legal fees, sale or purchase fees, stamp duties originally paid, enhancement expenditure etc.
As the property is entirely in the name of one person, only that person's CGT Annual Allowance can be utilised. This is currently set at £12,300.
It might be worth considering another interspousal property transfer - this time consisting of half of the property. This would have two significant effects. Firstly, it means the other person's CGT allowance can now be utilised and it also might make better use of the lower and higher CGT tax bands. The latter can only be determined by doing some calculations.
Finally, you need to be aware that the disposal of residential property has a much tougher and tighter reporting and payment regime compared to just over a year ago. Essentially, the taxpayer has 30 days from the completion date of the property to both report AND PAY the CGT to HMRC.
Eric, many thanks for your time taken to reply and the info contained within. I am obviously going to need to seek advice from a solicitor over what we will need to do for the best to maximise the tapering of the CGT. Fortunately I have documentation of the spend on maintaining the house going back many years.
The personal allowance situation and what proportion of the two rates of CGT will be applied is interesting as the owner is on base rate taxation and former owner/spouse into higher rate (but not by a huge amount).
The personal allowance situation and what proportion of the two rates of CGT will be applied is interesting as the owner is on base rate taxation and former owner/spouse into higher rate (but not by a huge amount).
It's going to be a fairly simply calc of the benefit of 2 x CGT allowance vs more higher rate element - although I don't think a solicitor is the best person for that advice!
Note that you can deduct cost for 'improvement works' but NOT maintenance. So an extension would count but re-decorating it would not.
Note that you can deduct cost for 'improvement works' but NOT maintenance. So an extension would count but re-decorating it would not.
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