Sitting tenant is connected person

Sitting tenant is connected person

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Client owns a share in a residential property, the other owner being the client's son who lives in the property.

Client now wishes to gift his share to his son. The value of this gift should be the open market value.

Solicitor has advised that as there is a sitting tenant in the property, the open market value would be low, and as a result, no capital gains tax would be due.

Surely this is not correct, given that the sitting tenant is the son and joint owner of the property?

Does anyone have any thoughts please?
Tony P

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By AnonymousUser
20th Sep 2005 17:32

Check the valuation with sitting tenant
I agree that market value applies and that there may be a possibility of agreeing a low market value where there is a sitting tenant.

However, Property Law has changed a lot in the last decade or so and I believe you will firstly need to determine exactly what form of tenancy the son (and / or his girlfriend) are deemed have of the part the son does not already own, assuming they don't have a written tenancy agreement for that part. The value of the property with that particular type of sitting tenant can then be determined by a surveyor or valuer. For example they could have an “Assured Tenancy” rather than an “Assured Shorthold Tenancy” which would change the value considerably. Alternatively, his occupation might be under licence with an altogether different valuation applying. The date he is deemed to have started the tenancy will affect which laws apply and hence the value. You will probably need to consult a property law specialist on this aspect.

In my limited experience, discounts range from about 10% to 40%+ of the value depending on precise circumstances of the tenancy but I have never dealt with a situation like this where the tenant owns a share of the property already.

There can also be the possibility of deducting an initial 5% to 10% discount for a jointly-held property - something to do with inability to sell freely because there is another owner but whether this applies if the owners are father and son, I do not know. My case was aunt and niece.

Whatever the outcome and deemed market value, the father will need to make appropriate disclosure of a valuation being used for his tax return.

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By AnonymousUser
21st Sep 2005 09:01

If I was the inspector ...
I would argue that the sitting tenant in this situation is acedemic. Surely the result of the gift is to increase the son's asset value to full market value and that increase therefore reflects the value of the gift?

Very interested if anyone has won such a case under better terms.

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By User deleted
20th Sep 2005 16:39

Update ...
The son's girlfriend lives with him.

Perhaps she is the sitting tenant?

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By User deleted
26th Sep 2005 11:30

Thanks for the contributions
I was inclined to ignore the existence of a sitting tenant also. I'm investigating Angela's suggestions though - thanks Angela.

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