Capital Gains Tax liability

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    Capital Gains Tax liability

    I'd like advice on capital gains tax liability. My son bought his first property ten months ago and due to delays it has only recently been habitable following major refurbishment. He and his partner intended to move in but have split up so now are selling. The value has risen quite considerably. Will they be liable for capital gains tax less the usually allowances. Would it make any difference if they lived in it until the sale goes through?

    #2
    You need a decent accountant to make sure the documentation is in order, but if your son and partner never expected to set up a business,
    either to rent out the property or buy it, do it up and sell it on, then there should be no tax to pay.

    Obviously the reverse of this is that if they did, or considered it seriously, there could be a significant gain.
    Given that the property has never been rented of used as part of a business, the gain would be income rather than capital (its property development not property investment).

    However, based on what you've posted, this is purely a private set of events and shouldn't attract any tax at all.
    However, you would want to make sure that you are confident you can withstand HMRC review as they may see things differently.
    They may also simply not notice the transaction.
    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


      #3
      I have to disagree with jpkeates.

      As they have never occupied the property, it is not their PPR and CGT would be due on the gain.

      Living in it for a few weeks/months would not alter the position, as they have no intention of making it their residence.

      Comment


        #4
        I agree that the criteria for PPR reliefs aren't met, but whether your is your home depends on the facts.
        If' the property has been worked on to prepare for the couple to move for 10 months, it's arguably their residence, even if they never managed to live there.

        It does look like something else, so they'll have to be able to prove those facts.
        If it was several years, or if there's any intent to profit before now, I'd agree with you.

        Would you declare it?
        Don't answer that!
        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
          It's their first home bought with a residential repayment mortgage. What will they need to prove they intended to live in it? When will they need an accountant or tax advisor, now or the following year when CGT forms have to be submitted.

          Comment


            #6
            Initially I would have been thinking on the same lines as JPKeats. Worst case scenario is that they will both have a CGT allowance of around £11k each and the rest of the profit would be taxed accordingly.

            Comment


              #7
              If CGT is payable, it is due the following tax year. You don't need to instruct a tax advisor to pay this (although I do - as then I know figures are correct). I would advise your son to contact an Accountant who specialises in Property Tax so that he can confirm if any tax is due or not.

              Comment


                #8
                So just to clarify. They will need a tax advisor to decide whether or not they think CGT is payable? Should they contact one immediately or just before CGT forms need to be submitted next year? They must keep all documentation and receipts like sale/purchase documents, council tax bills etc.

                Many thanks for the advice.

                Comment


                  #9
                  I would get some professional advice from an accountant.
                  These things are an art not a science.
                  If they don't normally complete a tax return, I'd be tempted just to ignore it completely.

                  They should keep all the documentation they can.
                  Hopefully they won't fall out too badly.
                  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


                    #10
                    Originally posted by jpkeates View Post
                    I agree that the criteria for PPR reliefs aren't met, but whether your is your home depends on the facts.
                    If' the property has been worked on to prepare for the couple to move for 10 months, it's arguably their residence, even if they never managed to live there.

                    It does look like something else, so they'll have to be able to prove those facts.
                    If it was several years, or if there's any intent to profit before now, I'd agree with you.

                    Would you declare it?
                    Don't answer that!
                    No occupation = no PPR.

                    The only exception is job related accommodation.

                    I suspect that you have in mind HMRC's Extra Statutory Concession D49 which allows an owner(s) up to 12 months (24 months exceptionally) to take up residence pending repairs and redecoration. But such residence still needs to occur.

                    Comment


                      #11
                      Originally posted by jicms View Post
                      So just to clarify. They will need a tax advisor to decide whether or not they think CGT is payable? Should they contact one immediately or just before CGT forms need to be submitted next year? They must keep all documentation and receipts like sale/purchase documents, council tax bills etc.

                      Many thanks for the advice.
                      I suggest that they don't waste their money, as there is no chance of success.

                      Comment


                        #12
                        Originally posted by jpkeates View Post
                        I would get some professional advice from an accountant.
                        These things are an art not a science.
                        If they don't normally complete a tax return, I'd be tempted just to ignore it completely.

                        They should keep all the documentation they can.
                        Hopefully they won't fall out too badly.
                        Under Self Assessment, the onus is on the taxpayer to notify HMRC of chargeability.

                        If CGT is due on this unreported gain, HMRC will add interest and penalties.

                        What is the problem? At least there is a gain.

                        Comment


                          #13
                          Perhaps your son could still move in - maybe share with a friend and buy ex-girlfriend out. Or you never know, perhaps they could patch things up and move in as originally planned.

                          Comment


                            #14
                            I don't normally disagree with King_Maker, and the OP would be advised to be very mindful of his (?) advice - it is always excellent.
                            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


                              #15
                              What is the size of the capital gain over 10 months ? ? Was the property bought in joint name or in son's name only ?

                              If the capital gain is 50K, shared between 2 persons = 25 K each. The capital gains tax could be ( 25K - 11K ) x 0.18 = 2.5K for someone paying income tax on 20% rate. or 4K for person on 40% tax rate.

                              Comment

                              Latest Activity

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                              • Reply to Caught out by changes to Capital Gains Tax
                                by reluctantlandlord1976
                                Hi Andrew
                                First of all I've got an initial appointment to speak to an accountant on Friday!

                                Can I just check where you write ' ...at death 1/6th of the value of the whole would have been deemed to pass to you for CGT purposes as the survivors would share the whole'.

                                Does...
                                08-12-2021, 18:02 PM
                              • Reply to Caught out by changes to Capital Gains Tax
                                by jpkeates
                                Even if probate wasn't mandatory, it would probably have been useful.
                                08-12-2021, 13:44 PM
                              • Caught out by changes to Capital Gains Tax
                                by reluctantlandlord1976
                                I appreciate 'ignorance' is no excuse, however there are some mitigating factors, i.e. due to illness etc.

                                1. Previous family home rented out - terrible tenants - left owing rent, bad repairs etc. [usual story for some] subsequently property not let for 2 years for a number of reasons while...
                                06-12-2021, 13:51 PM
                              • Reply to Caught out by changes to Capital Gains Tax
                                by AndrewDod
                                Yes this would be the case if it was jointly owned (not as tenants in common). The situation would be that at death 1/6th of the value of the whole would have been deemed to pass to you (for CGT purposes), as the survivors would share the whole.

                                So for the 3 periods you would be taken...
                                08-12-2021, 12:51 PM
                              • Reply to Caught out by changes to Capital Gains Tax
                                by reluctantlandlord1976
                                jpkeates
                                There was no estate as such, property jointly owned - they were both retired at time of purchase living on small pensions, hence I bought with them so they could stay in the home they'd been renting from council from early 1950s to March 1982 at time of purchase. And I paid for the initial...
                                08-12-2021, 10:50 AM
                              • Reply to Caught out by changes to Capital Gains Tax
                                by jpkeates
                                I don't know the historic thresholds, but it's bizarre that there's no probate for both of your parents, their estate has to be tiny for that to be possible nowadays.
                                It's probably too late for HMRC to do anything about that, but that process sets the values for CGT calculations later on, so it's...
                                08-12-2021, 10:28 AM
                              • Reply to Caught out by changes to Capital Gains Tax
                                by reluctantlandlord1976
                                Morning Andrew
                                Thanks for your response early this morning and clarifying I have to make three separate calculations [the split wasn't clear on the CGT calculator].
                                I understand the query on the value but this is an ex council house on a council estate [I feel I have to defend it here as...
                                08-12-2021, 08:45 AM
                              • Reply to Caught out by changes to Capital Gains Tax
                                by AndrewDod
                                As gordon indicates you need to consider it in three entirely separate parts, each have their own gain and calculation --

                                The part YOU owned before Death 1
                                The part YOU owned between Death 1 and Death 2
                                The part you owned after Death 2

                                Based on the values you give...
                                08-12-2021, 05:52 AM
                              • Reply to Caught out by changes to Capital Gains Tax
                                by reluctantlandlord1976
                                Thank you Gordon, didn't see your response this afternoon. I will look at this with fresh eyes tomorrow as it's late now.
                                I've put some figures in my reply to a post just now but answers below to your questions.

                                a] £80k Jan 2021 sale price.
                                b] As property purchased before...
                                08-12-2021, 00:55 AM
                              • Reply to Caught out by changes to Capital Gains Tax
                                by reluctantlandlord1976
                                Andrew, apologies only just seen your post [was it awaiting approval did you say?] answers are:

                                Purchased March 1982 as joint tenancy - so equal split of 33 1/3% each party
                                Parent 2 died September 2007 - as joint tenancy I inherited their share - so at this point I own 100% of property...
                                08-12-2021, 00:41 AM
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