Would I be liable for capital gains tax?

[Lucas01]

Hi,
I currently own a house in which my son lives. He would like me to sell that house and buy another property jointly. I am happy to do this but am a little worried about the capital gains tax that would be payable.

Would I have to pay any capital gains tax on the property? What I would ultimately be looking to do is buy the new house with my son, then after a while transfer the amount that I invested to him. Would he or I then have to pay CGT at that time if there was a way around it now?

Would he have to pay inheritance tax at the time that I transfer it?

I also do not intend to live with my son. I have my own property which my father transferred to my name 2-3 years ago. My father also lives with me and my wife.

The house that I am selling has also been let to a tenant in the past but my son has lived there for the past three years.

I would appreciate any help in this matter as although I will be speaking to my accountant about it, I always find it's better to go in with a bit of information and the info on hmrc about CGT is quite confusing.

Thanks.

Luke

[themas]

If you have not lived in the house at all yourself then yes, you will be liable for CGT when you sell it. You may be entitled to some relief as a result of the house having been let out to a tenant.

You could minimise the CGT by making your wife (not your son) a loint owner before you sell. She & you would then both be entitled to your annual CGT-free allowance on the sale.

There are complex rules about all this - & about how to calculate the gain which will be subject to CGT - so you certainly need your accountant's help.

Inheritance tax doesn't come into it. That is only payable once you die - & is then normally payable out of the estate you leave, rather than by your beneficiaries.

[Lucas01]

Hi Mark,

Thanks for your prompt reply.

How would the relief be calculated for the period that the property was let? Is there a set allowance as in the personal allowance figure?

I also forgot to mention that the house is already in joint names with my wife.

I was thinking that if I transferred the house to my son and he sold it would he then be liable to pay capital gains tax as it's his only house?

I have lived in that house for a short period - six months - if I remember rightly whilst I was renovating another house. However this was about 12 years ago and I don't still have the paperwork for that time period.

The whole thing is a minefield! Also the house is valued at 150,000 so if I did transfer it to my son this year (as I plan on giving him that money eventually anyway) would he be exempt from stamp duty too or am I getting that completely wrong?

Thanks again!

L

[buildersmate]

Not sure that I agree with Themas' assessment that CGT is reduced during the time the property is let. As far as I know CGT is assessed at 18% of the net gain from what you sell it at less what you bought it for, but less any marketing costs (mainly legal, estate agent fees). The business about tax being reduced during the letting period may be related to INCOME tax that you should be paying on any profit from the letting (income less expenses in maintaining the property).
However the tax liability is reduced by your personal CGT annaul allowance of just over £10k pa and what Themas is suggesting is that if you put the property in joint names with your wife, you may be able to get double the annaul CGT releif to offset against any CGT liability.

I think you will find that HMRC have blocked off any way to transfer to house to your son by showing no CGT gain (i.e. by transferring it at the same price you paid for it). Not only is land tax due on the value but it is tax avoidance of CGT.

It isn't that it is a minefield; it is made difficult because HMRC don't want people avoiding tax. Your accountant may be able to be a little more creative than our suggestions - that's what you pay him for.

[themas]

1. I got the CGT letting relief here:

http://www.hmrc.gov.u...y/sell-own-home.htm#4

The maximum amount is £40K, but the calculation is obviously complex!

2. Stamp Duty Land Tax rates are here:

http://www.hmrc.gov.u...ates-thresholds.htm#1

If your son is a first time buyer, or if you are in a disadvantaged area, then there is no duty on a £150K house at present. Otherwise the duty is payable.

3. If your son owns the house & lives in it as his only or principal residence then there will be no CGT when he sells it.

4. There should be some CGT relief as you lived in the house for a while, but I've no idea how it is worked out.

5. If you give the house to your son (instead of selling it) you will have to pay CGT.