Capital Gain??

Capital Gain??

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Hi

Just spoken to a gentleman who has been asked to complete Employment and Capital Gains schedules for tax year 2004-2005.

Background to the story.......

Client purchased a property back in 1996 for only £14k (apparently needed a lot of work doing - BARGAIN), spent around £12k restoring it then left it empty for a number of years?? Need to check if he received any rental income as none has been declared. Then in 2003 gave the property to his son as a 'Gift' who lived there for around 18 months before selling the property on and moved home. (Sale approx £70k)

Obviously HMRC have got wind that the property was sold and have asked my client to complete the Capital Gains schedule BUT my question is this, as my client passed on the property to his son as a 'Gift' then he sold it on, is there any tax liability? This was his sons main residence by the way.

Sorry if this sounds thick but Capital Gains is not my strong point and usually don't deal with it but would like to help the client.

Thanks in advance

Replies (6)

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By MBK
19th Jan 2012 13:06

Yes

Father, when gifting to son, is deemed to have disposed of the property at its then market value. So there will be a gain in the year of the gift. You will need to get a valuation prepared.

Son's gain (if any) will be PPR exempt.

 

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Euan's picture
By Euan MacLennan
19th Jan 2012 13:50

May be more complicated

I agree with MBK, but if HMRC has rumbled that the father gifted the property to his son in 2003, they would have asked him to complete the CG schedules for the 2003/04 or perhaps, 2002/03, tax return, but not the 2004/05 return.

My guess is that the father never registered the gift at the Land Registry, so it remained in his name, and that it is the son's sale for £70K 18 months later that has triggered the requirement for the father to account for the capital gain in 2004/05.  If so, the father is not entitled to any PPR relief and has a taxable capital gain of £(70-14-12)K = £44K less some taper relief and the £8,200 annual exemption in 2004/05.

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By MBK
19th Jan 2012 16:13

Surely ...

... father either made the gift or he didn't. If it wasn't registered at the Land Registry that is neither here nor there for CGT - although there would need to be clear evidence that the gift was actually made.

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By mn2taxhbj
19th Jan 2012 16:47

MBK - not the case

MBK - I agree with Euan, it is also my understanding that beneficial ownership of land can only pass through a recorded document in the land registry, and he does make a valid point about timing. 

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By MBK
20th Jan 2012 08:08

No

Beneficial ownership of land can transfer without any record of that transfer at the Land Registry. It happens all the time. Lawyers like to register the interest of the beneficial owner at the LR, but that is merely a protective measure and is not a requirement that has to be met to perfect the transfer.

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Euan's picture
By Euan MacLennan
20th Jan 2012 09:59

Whatever ...

If MBK is right and there is clear evidence of the gift (I still think that an entry on the Land Registry would be the only incontrovertible evidence), HMRC needs to be informed of the gift and the father needs to be disclosing the capital gain in 2002/03 or 2003/04, not 2004/05.  The son would then have nothing to disclose as he would be covered by PPR relief.

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