Capital gains tax on a house

Capital gains tax on a house

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Immediately I wondered if the AccountingWEB audience could help.

Essentially my friend is looking to buy a second house in the UK. He and his wife currently have shared ownership on their current house (and no option for having one each), but what about the rest of the family?

Would a liability arise if Billy holds onto the property until he wants to sell it, then sells the house to his son at the original purchase price, who then immediately sells it on the next day. Would there be gift/evasion issues? What rate would the CGT arise at if at all?

What if the house was put into his sons name from the word go?

And by the way this is a genuine enquiry, although it smacks of an exam question!
Tom Cogswell

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By Tomcogswell
14th Feb 2005 11:41

CGT continued.....
Thanks for the comments guys - and in advance for ay more that appear!

You are correct ebeneezer - the reason for putting the house in the Son's name is to avoid CGT altogether as will be his only and main residence.

Could there be an option of setting up a trust deed - whereby the son would own the house, but owe the trust any proceeds from sale?

3-way ownership could also be a viable option - as the Son's only residence, would he have fullexemption on his share - even if no money changed hands when he received his share?

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By User deleted
12th Feb 2005 18:03

House query
Selling the house to the son won't work as he is a 'connected party' and market value would be used for tax purposes.

I assume you want the house in the son's name as he is taxed at a lower rate? CGT is charged at 10, 20 and 40% after the CGT exemption. See below.

If the house was in the son's name from day 1, he would be charged on sale. What about 3 way ownership thus giving access to 3 lots of annual exemption plus presumably lower rates for the son?

The gain will also be reduced by taper which you might not know about. If asset owned for more than two years, they get a 5% reduction each year up to a max of 60% (i.e. after 10).

Capital Gains Tax: Individuals

Annual exempt amount 2004-05 £8200

The amount chargeable to CGT is added onto the top of income liable to income tax for individuals and is charged to CGT at these rates:

below the starting rate limit at 10%,
between the starting rate and basic rate limits at 20%,
and above the basic rate limit at 40%.

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