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Can CGT be avoided on sale of 2nd property

Can CGT be avoided on sale of 2nd property

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I have a client who bought a house for his daughter a few years ago because his daughter could not get a mortgage. House and Mortgage in clients name. Client now wants to sell and sale price is £260k compared to purchase price £125k so as it stands a significant CGT bill at 18%/28%.  

Daughter paid my client rent to cover the mortgage payments. Client has never lived in the property.

 Is there anything that can be done in these circumstances to avoid this tax charge where in reality this is the PPR of the daughter but from a CGT perspective it is not!   

Thank you

 

Replies (19)

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By Accountant A
09th Oct 2017 14:18

Doubt it.

Has he reported the rental income to HMRC (assuming it's reportable)?

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Replying to Accountant A:
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By davebrown123
09th Oct 2017 15:44

yes, rental income reported

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By mrme89
09th Oct 2017 14:24

Was the rent at market rate or below market rate?

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Replying to mrme89:
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By davebrown123
09th Oct 2017 15:44

below market rate

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By Portia Nina Levin
09th Oct 2017 14:32

This could have been done without there being CGT, but it involves a little used process known as "planning".

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Replying to Portia Nina Levin:
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By davebrown123
09th Oct 2017 15:46

I know but having just picked up the client and realising he is in trouble on this one I am trying to see what if anything can be done.

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By Chris Mann
09th Oct 2017 14:50

"Is there anything that can be done in these circumstances to avoid this tax charge where in reality this is the PPR of the daughter but from a CGT perspective it is not!"

Sometimes, it's like knitting fog, isn't it? The potential CGT liability almost becomes a penalty for your client not seeking professional advice, before the original and "artificial" transaction took place.

It would also be fair to ask whether the solicitors, who presumably dealt with the initial conveyance of the property, were aware of the background to the transaction.

Seemingly, everyone involved in this arrangement has shot themselves in the foot, trying to do right by the daughter but failing to secure sound advice?

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JCACE
By jcace
09th Oct 2017 15:25

This was in Tips & Advice-Tax that dropped through my door the other day:
Client could invest the bulk of the gain in an EIS and thereby defer the gain until such time as the EIS investment is sold. It will then qualify for normal CGT rates of 10 and 20%. Of course, EIS investments are risky, and your client could end up losing his money and thereby completely avoid any charge to CGT.

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By ireallyshouldknowthisbut
09th Oct 2017 15:52

@jcase, you demonstrate admirably why "Tips and advice" is complete and utter rubbish.

Id say your client was stuffed myself.

Your main room for wriggle would be if he was holding the property as a bare trust for the sole benefit of his daughter, but it seems to me that is not the case with rent being paid.

You will no doubt get the dubious honour of letting your client know he is a numpty for not taking advice prior to purchase.

Also I'd remind him about the fact that only the mortgage interest element is deductible. invariably it will be a repayment mortgage........its going to be a fab call. I often use the phrase "I am an accountant not a magician " in such circumstances.
I would also stress the fact he has doubled his money. And this is a good thing.

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Replying to ireallyshouldknowthisbut:
By SteveHa
09th Oct 2017 16:00

Does anyone actually subscribe to "Tips & Advice", or do they just send it out randomly. We've never subscribed, but it keeps dropping through the letter box.

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By Jackie0802
09th Oct 2017 16:49

I did a similar thing with my daughter some years ago. Importantly, she paid the deposit, has paid all the mortgage payments and has lived in the house the entire time. Oh, and, we drew up a deed of trust naming her as the sole beneficiary.

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By I'msorryIhaven'taclue
10th Oct 2017 13:06

I expect you'll have thought of this, but your client might consider the penance of selling his own PPR and moving into the "daughter's" house instead.
I know it's obvious to us as a workaround, but your client may not have thought of it. Doesn't sound as though thinking things through is his strong suit.

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By kaff
11th Oct 2017 08:13

Very entertained by the tone of both the question and some of the answers. Client has had sufficient resources to enable him to buy a property for someone else to use for a few years. He’s recouped the costs of servicing the loan, and has retained title to the investment asset thereby doubling his money. Difficult to see how this really constitutes him being “in trouble”, as OP puts it.

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Replying to kaff:
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By Jackie0802
11th Oct 2017 09:29

kaff wrote:

Difficult to see how this really constitutes him being “in trouble”, as OP puts it.

He's not, unless he has an aversion to paying unnecessary tax.

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Replying to Jackie0802:
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By justsotax
11th Oct 2017 09:43

I guess it comes down to whether it is the client or his daughter who wants to sell the property. If its the client, then it seems they were never really 'giving' a property to the daughter, just providing a 'cheap' rental property whilst she sorted herself out....very different from an arrangement to provide her with the property in the end.

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Replying to Jackie0802:
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By justsotax
11th Oct 2017 09:43

I guess it comes down to whether it is the client or his daughter who wants to sell the property. If its the client, then it seems they were never really 'giving' a property to the daughter, just providing a 'cheap' rental property whilst she sorted herself out....very different from an arrangement to provide her with the property in the end.

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Replying to justsotax:
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By I'msorryIhaven'taclue
11th Oct 2017 11:25

Justsotax, you may be on to something.
OP, was the property by any chance bought for the daughter to occupy while at university?

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By carlh
20th Oct 2017 16:13

One simply uses 'planning' to put the property into an asset trust.

yes boys an girls i am still here :P

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Replying to carlh:
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By Portia Nina Levin
20th Oct 2017 16:30

Have you been sending people nasty PMs?

Honestly though, you're like syphilis. You think it's cleared up and then it springs back up again with a vengeance!

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