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Capital Gains Tax when 50% owned becomes 100%

Sister gifted 50% share of gifted parents house to brother. New purchase price for disposal query

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Hi All,

I was gifted my parents’ house in Apr 2014 at a value of 150,000 - 50% was owned my me with my sister owning the other 50%.

Both parents have now deceased.  Due to a family breakdown (before both parents died) my sister does not wish to receive the proceeds of the sale.  My sister transferred her share to me via the Land Registry and this formularised September 21; I now own the property 100%.

The house has been put up for sale with a guide price of £200,000 – valued by the Estate Agents / Surveyors.  I have an offer accepted for 210,000 – yet to be completed. I own my own property, and I have not lived in my parents’ house since they gifted it - so I will not qualify for PPR.  I am aware both my sister & I will be treated as ‘connected persons’ and the market value will need to be adopted even though the house was gifted 50/50 the transferred 100% for nil cost.

Minus usual deductions for costs, my sisters CGT gain will be I assume 75k to 100k (half the guide price as this would be adjudged market value) when she disposed/transferred her 50% share to me = £25,000

However, for my CGT, when the house is sold, I am unsure what figure to use for my purchase price/base cost as the 50% gift from my sister complicates matters.

For this query, lets accept the sale to be £210,000

1.     Would I use the purchase price of £150,000 as the base cost i.e., as if I had owned 100% in 2014? Resulting in a gain of £60,000

2.     Or will the base be £200,000 as this is the assumed market value at the point of transfer? Resulting in a gain of £10,000

3.     Or will the base cost be apportioned to a new base cost i.e.

·       Calc 1 value in 2014: 75,000 to value at transfer in Sept 21 at £100.000 (50% ownership) = £25,000 gain

·       Calc 2 value in Sept 2021: £200,000 to 210,000 = 10,000 gain (100% ownership)

Total gain £35,000?

4.     Like above, will the new base rate be the original value £150,000 + £25,000 (sisters CG gain) = £175,000. Resulting in a gain for me of £35,000

I appreciate point 3 or 4 are subtly similar but I have presented both with the capital account gateway in mind, in that, the form isn’t designed with this convoluted scenario in mind, so wondered if 3 or 4 is correct, would 4 be the best way to record it.

NB I have no CG losses to bring forward or entitled to letting relief - this is is my only CG event.  I do not have a SA return and understand I will have 30 days from disposal to report though the new CG government gateway.

Replies (6)

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By David Ex
11th Oct 2021 12:46

If you don’t understand the law, at least you have the funds to pay for some professional advice.

We assume your sister understands her 30 day reporting obligations.

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Psycho
By Wilson Philips
11th Oct 2021 12:48

Your base cost will be the value of your share of the property on original acquisition plus the market value of the part transferred from your sister. On the face of it, £175k (£75k plus £100k). However, it may not be as straightforward as that. The value of half of a property is not necessarily the same as half of the total value.

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Replying to Wilson Philips:
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By Paul 28
11th Oct 2021 21:05

Thanks Wilson - appreciated.

Can you expand on the final sentence - grateful if you tell me when this would be the case? As I owned 50% with my sister and she disposed of it in Sept 21 would the valuation (200k) be the same at the point of her disposal as it would be for my starting point from when I became 100% owner?

NB: the house was valued by an estate agent and presumably that is the market value? In addition, there are no mortgages upon the property.

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Replying to Paul 28:
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By Hugo Fair
11th Oct 2021 22:05

I'll let WP answer more fully, but:
* The MV of a 50% share of a £200k property is likely to be less than £100k, simply because (in an open market) who wants to have a non-controlling interest in a property where they don't even know the other part-owner?
* MV is by definition a matter of opinion - but if you want to defend a value against HMRC then at a minimum you should have valuations from 3 unrelated Estate Agents ... but preferably a Red Book valuation from a RICS Registered Valuer (which will cost you but is usually accepted without question by HMRC).

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By paul.benny
11th Oct 2021 13:12

+1 to recommendation to pay an accountant to get it righ.

Not within the scope of the question, so you may have considered..
- did parents continue to live in house and did they pay rent? Depending on the answers, house may still form part of their estate for IHT. And/or rental income needs to be declared.
- Whilst I note the comment about relationship breakdown, most people's hurt/principles soon fade when money is involved. Is there something else going on? You may not wish to mention it here, but do tell your adviser.

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By Paul Crowley
11th Oct 2021 16:18

Way too much for a forum
Sounds like a Gift with reservation of Benefit at outset (GROB)
Gift of half from Sister confuses things. She owes tax, probably, based on unknown market value of half a house. See Wilson, not total divided by 2
BUT real life, HMRC would probably not challenge a reasonable figure as as her value just passes down the line to you
The first half for you is easy based on the market value of first gift.
Second half depends on the sister valuation

Definitely not a DIY operation
No rebasing

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