Singing Pig

Hi Folks, client of ours has his house on the market at the moment and has a bit of a CGT quandry;

He moved to the property with his parents in 1961, it was his parents house. He lived in the house from 1961 - 1967, in 1990 his parents mortgaged the house, in 1992 he paid his parents mortgage off and they signed the house over to him. its now on the market for sale. For the past 10 years or so its been let out or so the question is.... Is he liable to CGT? 

I've told him to speak to an accountant who is more familiar with his situation but thought i'd put it past the SP'ers as well

regards

leighton

Hi Leighton,

may I rephrase your question to "How much CGT is he liable to pay?", because there is no doubt there is CGT liability on the premise that the property value at sale is bigger than the property value on acquisition (1992).

All details on the relationship of your client with the property prior to their becoming formally owners of it, does not bear any weight in estimating CGT. From the details presented, the time to initiate CGT estimation is 1992, when they become owners.

CGT = ( (Value at Sale) - (Value on acquisition)  - (Annual allowance) - (Private lettings allowance)) * ((2008 - 1992 - (Years of PPR) - 3)/16) *18% ,

where,

Value at sale: the money received from the buyer 

Value on acquisition: the property's value on the date your client overtook ownership in 1992, it will have to be obtained by specialist valuers unless it can be provedn any other way, such as valuation committed close to the date of acquisition

Annual Allowance: the annual CGT allowance currently I think at £9,200 

Private Letting Allowance: this can be up to £40,000 

2008: current year of sale

1992: year of acquisition

Years of PPR: the number of years your client had the property as his formal Primary Private Residence between 1992 and 2008, if at all then this parameter is 0 

3: years allowed further if the property was PPR.

18: the number of years of ownership (2008-1992) 

18%: the new CGT rate, valid since 6th April 2008, which substituted Taper relief and indexation.

I am sure the above will set your thoughts going whilst James will soon kick in to verify and complement my comments.

All the best

Aris
 

Hi Aris

 i dont think i could have asked for a better response  ! thanks very much!

regards

leighton

Nice attempt Aris, I would give you 9 out of 10 but its wrong in one important respect - lettings relief wouldnt be available as this is restricted to the value of PPR relief and the chap doesn't appear to have lived there since he took on ownership.

So in a nuthsell sales price less purchase price less £9,200 times 18% = tax due 31st Jan 2010. What the purchase price is will be depends on what happened in 1992. Usually not a lot but decelerations may have been made at this point which will impact the numbers used in the CGT comp.


HOWEVER - there may be things he can do, so suggest to your client to take appropriate advice BEFORE the sale. A few options available here depending on his circumstances.

Also the initial transfer may need to be looked at from an IHT prespective - quite common to see this sort of transfer enacted on a DIY basis and remain in the estate.

Leighton - I know these sort of thing sounds really cheesy on forums but if you don't have anyone to turn to on these sorts of things we can work remotely for reasonable fees if  your client is unrepresented. Its a very routine type of work for us and with a bit of luck we can save a big pile of  ££££'s for your client. Happy to do a 5-10 min chat FOC in any case.

Regards,