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Selling a property that was a gift

Selling a property that was a gift

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Just needed a little bit of advise - my client was given a property by his father 3 years ago ad has been renting this out.  His father is still alive, and my client does not own another property but rents a house for himself.   He has now sold the property in the tax year 15/16.  Is he liable to capital gains tax ? I presume he is only liable for inheritance tax if his father dies within the seven year period.

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By cparker87
11th Jan 2016 12:35

What is the tax base cost?

Do you know the tax base cost of the property and the selling price? 

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Replying to Glennzy:
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By kimdfish
12th Jan 2016 10:06

Gift implications

Yes the property value at time of gifting was  £110,000  and was sold for £122,500

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Out of my mind
By runningmate
11th Jan 2016 13:21

Presumably when father gifted the property he dealt with the CGT on the gift on his self assessment tax return for that year.  You need that info.  The value your client's father placed on the property in his CGT computation on the gift is the 'cost' to your client for CGT purposes.

Your client is not liable for IHT.  When his father dies his estate will be liable for IHT & the gift of the BTL may need to be taken into account in calculating the IHT payable by the estate.

RM

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Replying to Wilson Philips:
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By Njpbennett1
13th Jan 2016 11:30

Selling a property that was a gift
"Your client is not liable for IHT.  When his father dies his estate will be liable for IHT & the gift of the BTL may need to be taken into account in calculating the IHT payable by the estate."

I would disagree that your client would not be liable for IHT.

The gift is a PET, if there's a death with 7 years the recipient of the gift is liable for any IHT, so for the tax is attributable to the value of the property transferred. See IHTA 1984, s199(1)(c)

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By Wanderer
11th Jan 2016 13:32

Did

your client live in the property after the date it was gifted but before he started renting it out?

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Euan's picture
By Euan MacLennan
11th Jan 2016 13:59

Market value

As the father disposed of the property at an undervalue to a connected person, the value for CGT purposes is the open market value at the date of transfer and that is your client's base cost for his CGT computation.

If the father did not disclose the gift at that value in his tax return 3 years ago, that is the father's problem as he may well have evaded tax.

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RLI
By lionofludesch
11th Jan 2016 15:11

Secrecy

If you don't tell us what the property realised, nor its base cost, how can we possibly say whether the taxpayer is liable for CGT ?

Querists need to be a little more candid.

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Replying to SteveHa:
By Ruddles
11th Jan 2016 15:16

Indeed

lionofludesch wrote:

If you don't tell us what the property realised, nor its base cost, how can we possibly say whether the taxpayer is liable for CGT ?

Querists need to be a little more candid.

We're also left to make assumptions about the taxpayer's UK residence status and the nature of the property.

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Out of my mind
By runningmate
11th Jan 2016 16:06

Maybe the intended question was 'If a client lives in a rented property and owns another which is a buy to let can he get CGT principal private residence on the buy to let property even though he has never lived in it?'.

The answer to that question would be 'No'.

RM

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Out of my mind
By runningmate
11th Jan 2016 16:10

Or maybe the intended question was 'If a client receives an asset by way of gift & later sells it, is the sale a disposal for CGT purposes?'.

The answer to that question would be 'Yes'.

RM

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Replying to Malcolm.Harris:
By Paul D Utherone
11th Jan 2016 16:34

and more to the point

runningmate wrote:

Or maybe the intended question was 'If a client receives an asset by way of gift & later sells it, is the sale a disposal for CGT purposes?'.

The answer to that question would be 'Yes'.

RM

is his base cost Nil so it's all gain.

 

But enough of this idle speculation in mid January!!

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By Anne Robinson
11th Jan 2016 16:27

If they haven't bothered to come back in 5 hours
I would take it that the idea of the father having a CGT when it was transferred has set the cat amongst the pigeons.

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By Tim Vane
11th Jan 2016 16:29

I think the question was: if it takes one client 2 years to dig a deep tax trap that he cannot get out of, how long would it take if his son were to join him?

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By tonycourt
11th Jan 2016 16:36

Who pays the piper

@ runningmate

In the case of a failed PET it's generally not the estate that's liable for the IHT, but the recipient of the gift. That is unless the donor says that the gift should be free of all taxes or something to that effect. 

Of course, if the recipient is the only residual legatee of his father's estate it won't make any difference to him.

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Replying to kevinringer:
Out of my mind
By runningmate
11th Jan 2016 16:50

Fair point

tonycourt wrote:

@ runningmate

In the case of a failed PET it's generally not the estate that's liable for the IHT, but the recipient of the gift. That is unless the donor says that the gift should be free of all taxes or something to that effect. 

Of course, if the recipient is the only residual legatee of his father's estate it won't make any difference to him.

Thanks, that's a fair point.

In many cases of course the 'taxable' element of the gift (after annual exemption, possibly times two) is 'taxable' at the NIL rate of IHT in any event.  But that's a different question . . . 

RM

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By Montrose
11th Jan 2016 18:14

CGT and IHT -how they interreact

 There are two questions here.

1] What is CGT position? Answer is that value at date of gift is your client's base cost on his subsequent sale. Father has CGT liability on his disposal at that figure, and if father does not pay son can be liable !

2] Quite separately the value at the date of gift is aggregated with father's estate for IHT if father dies within 7 years of the gift. The gift does not include any CGT father had to .pay, but there is no relief for such CGT, nor is the property rebased to the value at the date of death if still held by son. [not applicable on facts given].

It is difficult to comment further on IHT postion without knowing values. Broadly if property at date of gift was worth no more than the exempt band [currently £325,000], and father had given no other gifts the impact of the gift is to eat into the nil rate band , but as explained above without the property being revalued for CGT, which would have happened if father had still held property at date of gift. This appears academic as son has sold the property apparently during father's life time.

If property was worth more than nil rate band at date of gift and father dies within 7 years of the gift the excess will be subject to IHT at 40%  in son's hands , with "taper" relief reducing that liability by 20% for each year after the third following the gift

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Replying to CloudAngel:
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By kimdfish
12th Jan 2016 10:08

gifting query

The property was valued at £110,000 and sold for £122,500

 

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Replying to AndrewV12:
Out of my mind
By runningmate
12th Jan 2016 10:18

What you need to do

kimdfish wrote:

The property was valued at £110,000 and sold for £122,500

You need to ascertain the costs associated with the sale (estate agents, solicitors or whatever) & deduct those from the sales proceeds (£122,500).  Then you need to deduct from that the 'cost' (£110,000).  What you have left is the gain.

Whether any CGT will actually be due may depend on what other CGT gains the client has in 2015/16.

So if the client has no other gains in 2015/16 and the estate agents, solicitors, etc cost, say, £2,000 the gain will be £10,500 (£122,500 - £2,000 - £110,000) & there will be no CGT to pay (but he will still need to put the figures on his self-assessment tax return for 2015/16).

The annual CGT exemption for 2015/16 is £11,100.

RM

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By Anne Robinson
13th Jan 2016 13:20

Have I missed confirmation regarding the fathers capital gain at time of gifting?

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Replying to johnjenkins:
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By kimdfish
14th Jan 2016 13:46

No you haven't Anne,   I am

No you haven't Anne,   I am trying to find out but when it was passed over as a gift the value was £110,000 and then  my client sold for £122,500

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By peterlashmar
13th Jan 2016 15:58

Property gift

The formally correct position is that his base cost for CGT will be the value stated in the Deed of Gift and also as used on the Conveyance and will now be on the Land Registry records. Hopefully all 3 values are the same.

No problem!

 

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Replying to New To Accountancy:
Portia profile image
By Portia Nina Levin
14th Jan 2016 14:01

Where do you come up with this rubbish from?

peterlashmar wrote:

The formally correct position is that his base cost for CGT will be the value stated in the Deed of Gift and also as used on the Conveyance and will now be on the Land Registry records. Hopefully all 3 values are the same.

No problem!

 

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RLI
By lionofludesch
14th Jan 2016 15:41

Not much

If this is his only disposal, the most CGT he'll have to part with looks like being a couple of hundred quid.

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By peterlashmar
15th Jan 2016 15:18

Property as a gift

It is sad that this was allowed to be posted as it is trivial and some commentators are becoming very bad tempered and irritable about the lack of details in the original question.  This should be a serious forum only for genuine questions of concern and interest.

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By Portia Nina Levin
15th Jan 2016 17:44

Button

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By Portia Nina Levin
15th Jan 2016 17:55

Switch

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