Will I pay capital gains tax on a property I sold?

17 December 2019

Q

My parents’ home was transferred into my name in 1993. My father stayed in the house, rent free, until he moved into a care home in 2010. He died in 2011 and I sold the house in 2018 for £65,000.

As I did not buy the house and it was a gift, on the understanding that my parents would not have to worry about any living costs, is capital gains tax (CGT) still applicable?

From
PM/Glasgow

A

As you have sold a property that is not your own home, there is potentially a CGT liability. CGT is usually calculated as the difference between the amount you paid for an asset and the amount you sold it for.

Even though you did not pay anything for the house, a gift is still treated as a disposal for CGT purposes. This means that back in 1993, your parents are treated as selling the property to you and you are treated as having bought it from them at its market value at that date. Your parents would not have been taxable on this disposal as they were disposing of their own home.

You will need to find out what the value of the property was in 1993 as this is your ‘base cost’.  You will probably need to ask a property valuer to give you a historical value for the property. [For data prior to 1995, the Valuation Office may be able to help (Voa.gov.uk). As a rough guide, Halifax (Halifax.co.uk/house-price-index) has average UK house prices since 1983.]

The gain that is potentially taxable is the difference between the 1993 base cost and the £65,000 you sold it for, less any costs of sale such as estate agent’s fees and legal costs. You then need to see if you can claim any relief against this tax. 

As you agreed that your father would occupy the property rent free, there is the possibility that you could be treated as holding the property ‘in trust’ for your father, for the period that he occupied it. 

If the arrangement was put in writing, you may be able to claim some private residence relief. If you believe some relief may be due, you should take professional advice on how to calculate this.

You have an annual exemption from CGT of £11,700 for the 2018/19 tax year, so if this has not been used against any other capital gains this will be deducted from the taxable gain. Any gain over this amount is taxed at either 18% or 28%. 

The amount of gain (when added to your taxable income) that falls within the basic-rate income tax band (up to £46,350) will be taxed at 18% and the balance will be taxed at 28%.

Parents giving properties to their children while still living in them can cause a lot of tax difficulties, and often end up creating more liabilities than they save. It is important to take advice from the outset to understand the tax implications of such arrangements. 

Stephanie Parker, trusts director at accountancy firm Haysmacintyre

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