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Principle Private Residence and sale of part of the garden

Principle Private Residence and sale of part of...

A mother and son have inherited a property 50/50.

Both own properties, however, for the sake of this issue, the son has elected to have his PPR at the inherited Property and declare his property as a buy to let.

Part of the Garden has the potential of being sold off for £130k as a building plot.

If the proceeds are split 50/50 then the mother will attract CGT on her half I assume. If all proceeds went to the son, then can this be avoided? There is the problem that the property will be sold at some point which will then raise another CGT issue (although we suspect the IHT valuation will be greater than the property sale due to the proximity of another house so this may not be the case).

My more simple solution is to transfer the mother's share to the son, it will cost a couple of thousand in stamp duty but then none of the potential pitfalls above seem to be in play.

Any feedback appreciated as usual.

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02nd May 2012 10:13

Election.......

First you need to check the validity of the election made by the son.  Has he made the house his residence in terms of changing bank accounts, driving licence, car regs etc as set out in HMRC manuals?  If he has not then there is no point in incurring SDLT costs.

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02nd May 2012 10:26

Mother's share to Son

The information suplied is quite limited. For example it is not clear how recently the property was inherited and consequently what level of gain there might be on the property. If the property was inherited recently then the gain might be quite small.

Assuming there is a gain then I cannot see how a transfer of the Mother's share to her son will get around the problem. This will be a CGT disposal at market value irrespective of there being no sale proceeds.

 

 

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memyself-eye
03rd May 2012 14:01

Garden

A very brief synompis as follows: -

Property Inherited 2 years ago, but had sitting tennant (living). IHT Value £325k

Sitting Tennant recently passed away so property no in Clients possesion.

Value still at £325k as building in need of mordernisation and improvement.

Client (son) has moved PPR to the property, intention to renovate whilst "living" there. Land could be sold as quickly as 6 months for £130k which, if property still jointly owned, would be split 65k each. Therefore, if property still in mother's name, she would be liable on her half of the gain - £65k @28% CGT (she is higher rate TP).

There would also be issues moving forward if property is sold for greater than £325k in the future (possible conversion of attic space is being considered) and there is also potential rental income when improvements have been made, which can (admittedly) be allocated to son who is basic rate TP.

My point is that cleanest solution is to transfer mothers half to son, before majority of improvements/planning on garden are acheived so value is still £325k and therefore no gain.

Son can then use PPR to mitagate money made from sale of Garden, and then mitagate any future gain in value of property by PPR or 'Lettings exemption releif' (I know this is the old name) in the future.

 

We have a valuation of the property currently at £325k so the transfer now would be at zero gain. The property post improvements would be worth min £375k without taking account of the potential value of the garden.

Hope that explains my thinking slightly more clearly.

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