CGT on an undervalue property purchase

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    CGT on an undervalue property purchase

    Could someone help me please. In June 2005 an ex partner transferred a property which was in his sole name into my sole name after a break up. He sold me the property at an undervalue. Price I paid was £88,000, at the time the market value was £130,000. I lived in the property until Nov 2006. I then purchased another property with a new partner and rented my existing one out. I am now selling this first property and wondered how much CGT I will pay. My current partner lived in the property with me for 3 months until we decided to buy a property between us. In 2011 my current partner came on the mortgage with me so we became joint owners. I think I am eligible for private residence relief but not my partner as he only lived there for 3 months. When I come to work out my CGT what figure do I take, will it be the £88,000 as the purchase price or would it be the current market valuation of £130,000. I have sold this property now for £135,000. I have looked at the government website and noticed there is a 'connected person' relief but I think this is only for spouses not common law? Any advice would be much appreciated.

    #2
    I wonder if you could claim principle private residence relief by virtue of having been living in the house when it was sold to you?

    (Presumably the reason it was sold under value was because you were owed a share of it by virtue of having contributed to it while with your previous partner?)

    Comment


      #3
      Originally posted by JK0 View Post
      I wonder if you could claim principle private residence relief by virtue of having been living in the house when it was sold to you?

      (Presumably the reason it was sold under value was because you were owed a share of it by virtue of having contributed to it while with your previous partner?)
      I lived in the house prior to buying it and yes he sold it me cheaper as I had put in new kitchen/bathroom/windows and paid towards the upkeep. I then lived in it for 18 month before renting it out.

      Comment


        #4
        The reason for the undervalue is important, if you acquired the property at market value over time that's one thing.
        If you simply acquired if cheaply, the CGT would be calculated on the difference between selling and buying values - you got more growth because you acquired a bargain.

        There is no such thing as a "common law" husband/wife/partner (in england anyway).

        When your partner joined your mortgage he became a beneficial owner (unless you changed the deeds to make him a joint owner).
        That transfer of ownership should probably have been declared to HMRC as CGT became due then - there are things you could have done to defer that, but presumably you didn't.
        What value was the property "sold" at then?
        When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
        Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

        Comment


          #5
          Originally posted by karen2947 View Post
          I lived in the house prior to buying it and yes he sold it me cheaper as I had put in new kitchen/bathroom/windows and paid towards the upkeep. I then lived in it for 18 month before renting it out.
          That sounds fair enough then. Perhaps get an accountant to submit your return, as he will be able to confirm the background.

          Comment


            #6
            Thanks for replies, when my partner came on the mortgage and deeds, we did it via a solicitor at a 60/40 split in my favour, no mention of CGT or HMRC then. The value around the time he came on the property was approx. £140k

            Comment


              #7
              From the sound of it, you were a beneficial part owner of the property in 2005 and the money paid simply reflected that,
              so the property was worth 130k - you just paid £42k of it in instalments prior to that.
              Was that valuation/beneficial ownership documented anywhere.

              If I'm wrong about the 2011 event attracting CGT, your £5k gain is below your annual allowance (so if it's the only capital transaction in the tax year, there's nothing to pay).
              If I'm right, you had a £10k gain in 2011 (which I think would be pretty much exactly what your allowance would have been then) and you've had a loss since.
              Again zero (or minimal) taxable gain.

              An accountant would be able to confirm the 2011 position and properly document the calculation.
              When I post, I am expressing an opinion - feel free to disagree, I have been wrong before.
              Please don't act on my suggestions without checking with a grown-up (ideally some kind of expert).

              Comment


                #8
                Yes, the transfer to your current partner in 2011 was a disposal for CGT purposes. Whether any CGT is due will depend on the values involved. The acquisition value seems to be £130,000. Have you retained that written valuation?

                Yes, you should get some PPR and Lettings Relief. Your partner will not. This may increase or decrease any CGT due. If your solicitors did not discuss the CGT implications with you, that could be construed as negligence on their part.

                Have you read HMRC's Help Sheet HS283 on the subject?

                http://www.hmrc.gov.uk/helpsheets/hs283.pdf

                Comment


                  #9
                  Many thanks .I have the original survey report from when the property was transferred into my name, this is where I took the figure of £130k from. So is it more likely that we can use the £130k figure as opposed to the price I paid for it?

                  Comment


                    #10
                    Get an accountant. They have a 'foot in both camps' so can explain things to HMRC in a way that you would have difficulty with.

                    Comment

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