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Tenants In Common And CGT

Tenants In Common And CGT

I own a let property jointly with my husband, as joint tenants. We wish to become tenants in common with my parents, because we owe them a sum of money, which we are not in a position to repay at the present time. My queries are as follows:

1. As we understand it, we would be liable to pay CGT on the transfer of the property to my parents. When would this become payable, at the time of transfer, or when the property was eventually sold? If at the time of transfer, when would the bill become payable?

2. Would we only owe CGT on the percentage of the property we transferred, or on the value of the whole property?

3. Could we transfer various percentages to my parents in different tax years to maximise our personal CGT allowances?

4. When the property is eventually sold, would all 4 people be able to use their personal CGT allowances?

5. If we had already paid CGT when we transferred the property to my parents, would we also have to pay it when the property is sold?

6. The property is mortgaged, on a buy to let. Would this be a problem?

Thank you.

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By LyneT
30th Apr 2012 12:18

To answer your queries in order

1.  The date of disposal for CGT is the date of the legally binding contract.  In your case, there is no contract, so it would be the date of transfer.  CGT is payable by 31 January following the end of the year of the disposal.  So if you did it now, you would pay CGT on 31 January 2014.

2. CGT is only payable on the disposal of the value transferred.  So if you transfer 1/7 of the property, you have disposal of 1/7 of the property and CGT is calculated on this percentage.

3. Yes

4. Yes

5.  You would pay CGT on the bit that you did not transfer to your parents

6.  Could be a problem. You will need the permission of your lender. 

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By Aspire
30th Apr 2012 12:30

Thank you very much indeed, very much appreciated.

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30th Apr 2012 14:36

Trust route?

Depending on how much you are needing to transfer you might be able to make a transfer into a trust without incurring any tax liabilities by electing to hold over the capital gain going into the trust.  You will however need legal and tax advice to make this work properly.

And there is potentially a stamp duty problem with the loan being in place.

There is also potentially an inheritance tax issue in transferring appreciating assets from younger generations to older generations.

I think you need to talk to a tax specialist about your specific circumstances

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By JennyH
30th Apr 2012 15:23

appreciating assets?

Paula, could you please point me to the IHT legislation which says that there is an issue transferring appreciating assets from younger generations to older generations?

 

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30th Apr 2012 15:32

There is no legislation

It is simple common sense.  If you transfer assets which will grow in value to older generations you are exposing them to Inheritance Tax earlier than you would be in the hands of the younger generation. 

Loans from Parents to children are still subject to Inheritance Tax but loans do not appreciate in value, so there is no concern about Inheritance Tax on growth in value on loans.

 

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By JennyH
30th Apr 2012 15:47

I see now

From the wording of the answer, I took it that you meant that there was something to prevent this in the legislation.  I did not realise you meant that it may not be preferable to do this.

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