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CGT or no CGT - that is the question

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I have a client's parents who have a property and a large garden (under 1/2 hectare).  In 2003 a section of garden was split off and two properties built on it.  There was a transfer deed putting the properties into joint names of mother, father and son and a valuation given.  both properties were then rented out.  Since then the father has died with his estate going to his wife.  One of the properties has now been sold.  I understand that the son will have to pay CGT on his 1/3 of profit - but is the mother exempt due to PPR?  Am really confused on this and can't find a similar example to see how the profit would be taxed

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By Tax Dragon
12th Aug 2018 22:43

No. It's not part of her garden anymore.

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By Montrose
13th Aug 2018 17:07

There appear to be 3 properties- the original PPR and the two newly constructed properties. PPR is available to mother on the original property as and when sold. The implication of the question is that it is one of the two other properties sold. TCGA s224(2) would require apportionment of mother's gain on sale for period the land was part of PPR. No rules for such apportionment are prescribed, but I suspect it would be on a time basis.
Mother's 1/3 share inherited from her husband would of course be rebased to value at date of death - which might be at a 10-15% discount from a prorata share at date of death.

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Replying to Montrose:
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By Portia Nina Levin
13th Aug 2018 17:57

Complete b011ox. Go away and read Varty v Lynes!

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Replying to Portia Nina Levin:
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By Montrose
14th Aug 2018 16:38

I don't use botox! Varty v Lyons failed to address the question of apportionment as it was not raised. Brightman was ambivalent in his ruling, coming down in favour of the Revenue. Worth a punt .

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Replying to Montrose:
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By Portia Nina Levin
14th Aug 2018 16:57

Apportionment doesn't come into it.

For there to be ANY PPR relief, what must be being sold is either:
1) a dwelling house that has been occupied as the taxpayer's only or main residence, or
2) land that at the date of the sale is enjoyed as the garden and grounds of such a dwelling house.

So you take a bit of land, and build a house on it. Then when you come to sell it, it falls within neither 1 nor 2 above. That was the point in Varty v Lyons; it's got to be part of the garden or grounds of the (original) dwelling house as at the date of sale. There is no apportionment in such circumstances.

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Replying to Portia Nina Levin:
RLI
By lionofludesch
14th Aug 2018 16:54

Very lucid.

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Replying to lionofludesch:
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By Portia Nina Levin
14th Aug 2018 16:58

She's still a gin-wh0re. Oh! I see what you mean.

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Replying to Montrose:
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By Tax Dragon
14th Aug 2018 22:12

Montrose wrote:

Varty v Lyons failed to address the question of apportionment as it was not raised.

That's right. Once the court had decided (for the reason Portia and I have given) that no relief was due, there was no point raising the question of how to apportion that Nil relief between the period of occupation and the period subsequent thereto.
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By Tax Dragon
13th Aug 2018 17:29

To expand on my reply: s224(2) refers to a change of use of the dwelling house, relief for which is under s222(1)(a). It is of no relevance to the garden, relief for which is under s222(1)(b), which must be used as the garden at the time of sale to attract relief. Here it has ceased being so used. Ergo no relief.

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By micki
13th Aug 2018 18:15

Thanks for replies - but I have been having a think. Obviously the point is to try and pay as little CGT as possible. The son has a large loss he can set off - the mother hasn't. As she owns 2/3rd of land and 2 properties, then she owes one whole property plus part of the other. I suggest that the one sold is the one she has only part ownership in. She is pretty old and likely to die fairly soon when the other property becomes part of her estate to go to the son, hence no CGT on that and no inheritance tax as she has her plus husbands allowance and her own property plus the one left does not reach that allowance value. Am I right in this?

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Replying to micki:
Hallerud at Easter
By DJKL
13th Aug 2018 23:26

Not particularly convinced, she surely owns 2/3 of the whole title and 2/3 of all the properties built on said title, unless previously some different ownership split was dealt with, but from what you say the only legal transfer was the original garden ground into the initial three names. I suspect there may not have not been a recorded conveyance of the third share of each on the death of the husband, how was that dealt with?

In addition I presume the rent from both properties was combined and she initially returned 1/3rd thereof re each and thereafter 2/3rds thereof re each, she did not merely return the rents from the unsold one and a third share of the sold one?

What conveyance of the unsold property such that it is solely in her name with the son conveying his third (what tax paid on that transfer) ever took place?

Maybe those above may be better placed to give you some comfort, but I am just not convinced your tentative interpretation marries to the facts.

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Replying to DJKL:
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By Tax Dragon
14th Aug 2018 06:45

Ah, that's what s/he meant. I didn't understand.

Since partition relief would not apply, I agree it's a non-starter.

The OP might wish to check that the properties passed under the Will rather than by survivorship, but it sounds as if that was agreed years ago, so that's a long shot.

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Replying to Tax Dragon:
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By Tax Dragon
14th Aug 2018 07:09

Tax Dragon wrote:

... partition relief would not apply...


You say that, TD, but the OP might want to dwell on that relief a bit longer. Can it be made to apply?
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Replying to Tax Dragon:
RLI
By lionofludesch
14th Aug 2018 08:32

Tax Dragon wrote:
..........to dwell on that relief a bit longer.

Pun intended ?

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Replying to lionofludesch:
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By Tax Dragon
14th Aug 2018 10:20

Only if I don't have to apologise for it. I'm sorry enough for commenting here sometimes.

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Replying to Tax Dragon:
Hallerud at Easter
By DJKL
14th Aug 2018 08:58

Tax Dragon, you have to watch yourself there, replying to yourself on Accounting Web could be a slippery slope.

Before long you may possibly have created an alter ego and you then you will be having extensive conversations/arguments with yourself.

Such a state of affairs is merely a short step to , "Alas, poor Tax Dragon, I knew him (her) well."

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Replying to DJKL:
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By Tax Dragon
14th Aug 2018 10:23

The skull of a tax dragon is quite distinctive, Horatio.

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By micki
14th Aug 2018 19:02

Thanks to everyone - I have read up on partitioning and the Varty case and don't think I can use either. Just have to put up with paying the CGT.

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Replying to micki:
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By Tax Dragon
14th Aug 2018 23:04

Just to make sure we are on the same page, my reference to partitioning meant relief under s248A. Is that what you have read up on?

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