Value of property gift.

Value of property gifted to relative

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A and B are husband and wife and own a large property which is being converted by them into five individual dwellings which will be owned on a freehold basis. The original property was such that it was relatively easy to distinguish which part would form each of the new dwellings.  It was their intention to gift one of the dwellings to their son, C.

Pre-conversion valuations were carried out on each of what would become the dwellings, and the cost price of each had been calculated. It was agreed that the gifted dwelling would be made to C in its original state and that C would then fund all of the conversion himself. This would mean that the capital gain arising on A and B for this gift would be the pre-conversion value less the cost price.

Unfortunately a number of legal delays arose but during this time C proceeded to fund the conversion of the dwelling and this has now been completed. It has not, however, as yet been transferred to him by A and B.

If this dwelling is now transferred to C, can the Capital Gain still be calculated in the same way? Alternatively will the dwelling be regarded as having being gifted on its conversion value and the costs of funding the conversion paid by C be regarded as a loan to A and B?

Readers comments are invited.

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