Capital gains on council right to buy

[tru.playaz]

Hi abit of a strange one i need some advice on.

 

 

My mum bought her council property more than 15 years ago at a cost of 15,000.

She has moved in with her boyfriend and now wants to sell the property.

Its still a leasehold as its a maisonette but has been valued around 185,000.

 

Aside from the normal fees associated with selling a house we are getting worried about capital gains tax.

 

 

We are hearing she will need to pay around 28% tax.

Which is alot when this was suppose to be for retirement etc.

 

 

She also wants to gift some to me and my brother.

But will not be purchasing another property as her boyfriend has one.

 

I have several questions and would like some advice on paying as little or none at all.

Obviously none is not going to happen but minimal.

 

Firstly, do you pay capital gains on the selling amount or the amount you receive after fees, stamo duty etc.

 

How much capital gains would be due,

is there an allowance?

Does timescale have an impact.

 

Is there anyway to gift any,

put the funds into a pension or investment schemes?

Shes due pension next year.

 

Signing the property to more than one owner?

 

Any help or advice on the matter will be great.

Shes not too happy at the prospect of handing over 40,000 in tax.

 

Thanks in advance

Tp

 

I just read if they get married within 3 years or sell 1 property within 3 years of getting married you dont pay?

[theoldrouge]

Depends how long it was her main residence

 

or for what period it has been rented out, if at all

[tru.playaz]

Its a strange one because she moved in with her boyfriend soon to be husband when they purchased the place and i carried on living here paying bills and council tax etc. I didn't pay any rent at all. Many thanks

[vinceyboy]

As she has never lived in the property as her principal private residence she will be liable to capital gains tax on the gain (profit).

 

In this case,the chargeable gain will be £185,000 - £15,000 =£170,000 less the annual exemption of £11,300 = £158,700.

 

The £158,700 will be charged at 28%

[tru.playaz]

Actualy it was even more complicated than that,

 

 

my mums bfs parents moved in the place so my mums bfs wife could move into there place.

 

 

And i was with a gf for a few years but moved to the place when my mums bfs parnets passed away.

 

 

So the property has been used by family members since it was purchased but not charged rent.

Many thanks

 

Ok thats what i thought.

 

 

Are there any other ways of reducing this?

Gifts, pension or investment?

Or is it all done once the sale has gone through.

Many thanks

[vinceyboy]

Doesn'the make any difference which family members have lived there. If the owner has not lived there it is subject to to the full rate of tax without any relief.

 

Still she has made a tidy sum.

[vinceyboy]

No there is no way of reducing this. The legislation is quite clear. She does get an exemption for the first £11,300.

[tru.playaz]

Ok thanks for.your help. I maybe completly wrong but can a married couple sell a property to the other and not have to pay the capital gains tax, thus setting the new base price. Then re sell on the market at base price and no gains due. Many thanks

[BazzaS]

Ok thanks for.your help. I maybe completly wrong but can a married couple sell a property to the other and not have to pay the capital gains tax, thus setting the new base price. Then re sell on the market at base price and no gains due. Many thanks

 

The first part is correct : the gift or transfer occurs at no CGT cost.

The second part is incorrect : there is no "reset" of the base price.

 

So, if the house had £15,000 original acquisition costs, and is worth £185,000 now, and then gets sold by the spouse for £205,000 in a few years......

There is no CGT owing on the transfer to the spouse, but the transfer value is deemed to be £15,000, not £185,000.

When sold by the spouse their acquisition cost is deemed to have been £15,000, making them liable for CGT on £190k (less allowable expenses), rather than an acquisition cost of £185k (so not CGT on £20k only).

 

One of the 2 is going to be paying CGT on the current £170k gain (absent a massive rise in CGT annual allowance or a massive slump in the property price).

[vinceyboy]

If one of a married couple transfers an asset to the other it is a chargeable event for capital gains puroses although no tax will immediately be due.

 

Such a transfer does not reset the Base cost. The ownership period and price paid for the property remains the same as with the original spouse owner and the tax on disposal will be calculated the same as if the transfer between spouses never took place.

[tru.playaz]

Ok no problem many thanks.

 

 

Just one more thing you may know, over the 15 years its been elderly parents of my mums bf and then myself in the property.

 

 

Would we be classed as dependants and receive the relief?

 

 

Many thanks for all your support.

 

Also in regards to the above base rate questions.

 

 

Would it make a difference if it was sold via each other or transferred.

 

 

Many thanks

[tru.playaz]

Is there any difference if its a lease rather than freehold. Many thanks

[vinceyboy]

No I'm afraid the tax will become due as above.

 

Your mother bought the property. Your mother never lived in the property. Your mother will have to pay tax on the profit she makes from the property regardless of whether it is leasehold or freehold and regardless of who else lived in the property. You are not classed as dependants.

 

HMRC are very hot on this sort of thing so I would advise she pays the tax and enjoys the substantial profit she has realised on her investment.

 

I'm sorry if that's not what you want to hear.

[tru.playaz]

Im just throwing things out there now but can it be transferred to my name or gifted and as ive lived here for 5 years would i then maybe be exempt for cgt. Many thanks

[tru.playaz]

I also beleave its only my mum on the paperwork, is it possible to add a second (husband) or more to the title to take advantage of not just one personal allowance but two or more? Many thanks

[vinceyboy]

Im just throwing things out there now but can it be transferred to my name or gifted and as ive lived here for 5 years would i then maybe be exempt for cgt. Many thanks

 

No

 

Seriously it doesnt make any difference. Your mother will have to pay the full amount of tax that is due and that's the bottom line.

 

I have over 20 years of experience of advising clients on the tax implications of the disposal of their assets.

 

Your mother has made a substantial profit and is liable to pay CGT whether she wants to or not the same as everyone else.

[vinceyboy]

I also beleave its only my mum on the paperwork, is it possible to add a second (husband) or more to the title to take advantage of not just one personal allowance but two or more? Many thanks

 

No when the property is disposed of HMRC will look straight through the artificial transaction and your mother will still be liable for the tax.

[tru.playaz]

Ok many thanks. Can i just run just one last thing past you. A basic case, sells for 185,000, minus 15,000 purchase, minus 11,500 allowance, minus 10,000 selling fees stamp etc, minus 5,000 repairs double glazing etc, minus x2 years of her living there which she just confirmed - 170,000cg ÷ 15years = 11,333per year so minus 22,666 for relief of x2 years??, and do you get a standard 18 month relief on the last 18 of ownership? @ 16,999? Total equal amount of cg? Many thanks in advance.

[tru.playaz]

@ 18% as shes a basic rate payer?