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Author Topic: Capital Gains Tax  (Read 2278 times)

F4TCT

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Capital Gains Tax
« on: December 04, 2012, 07:11:20 PM »

Any experts on capital gains tax/selling houses etc...?


Dan
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Capt Podge

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Re: Capital Gains Tax
« Reply #1 on: December 04, 2012, 07:18:31 PM »

I'm nothing like an expert but a good starting point would be HMRC.gov.uk  O0
 
Guess it depends on the question really - specific or general...
 
Regards,
 
Ray.
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F4TCT

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Re: Capital Gains Tax
« Reply #2 on: December 04, 2012, 07:22:41 PM »

Looked on hmrc but cant really get an answer.


But goes as follows. Person A owns a house with outstanding mortgage of 60k. Person B pays their mortgage off and gives them a gift of 30k. Person B also loans person A 160k.


Person A then applies for another mortgage to by another house, this time they will have 50k outstanding on the mortgage. They will then sell there previous home for 160k and give person B their money back.


Because person A has techincally made a capital gain, are they liable for capital gains tax even though they owe the money to peson B?


Help!
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Norseman

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Re: Capital Gains Tax
« Reply #3 on: December 04, 2012, 07:30:43 PM »

Hey Dan

Good luck with the tax men - they'll have the skin off your back if you let them. Tax advisors can usually save you at least what they charge. My in law would prefer to bleed for an hour rather than spend a fiver; but he always gets advised on his tax matters.

Dave
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Capt Podge

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Re: Capital Gains Tax
« Reply #4 on: December 04, 2012, 08:17:58 PM »

Sounds like a job for a solicitor this one. For instance, the deal between A and B - are there any signed documents involved or is it a "Gentleman's" agreement ?
 
Also, is the sale of the house classed as the "main home"
 
Pulled this off the HMRC website
 Do you need to report a sale, disposal or gain? Some assets are not liable to Capital Gains Tax. For example private cars, shares in ISAs and, in most cases, your main home. You don't need to tell HMRC if you have sold or otherwise disposed of assets which are not liable to Capital Gains Tax. You cannot claim for losses on assets which are not liable to Capital Gains Tax. So there is no need to tell HMRC
 
Bit of a minefield this one Dan;  %%
 
Citizens Advice Bureau might also be a helpful source...
 
Regards,
 
Ray.
 
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F4TCT

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Re: Capital Gains Tax
« Reply #5 on: December 04, 2012, 08:27:20 PM »

Well person A and B are father and son, so yes gentlemens. No paperwork would be required, unless it would help the avoidance (rightly so) of capital gains tax, especially when it was a loan in the first place.


hard one innit. I plan to ring HMRC and see what they say, although i think they may not have the answer.


Dan
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Grumpy Dave

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Re: Capital Gains Tax
« Reply #6 on: December 04, 2012, 08:53:40 PM »

Get good reliable advice. Be prepared to pay for it. On a side track it has been known for a parent to transfer their house to a child in the expectation of living in it for the rest of their life only to have the child evict them,put them in a home and sell the house.
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dreadnought72

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Re: Capital Gains Tax
« Reply #7 on: December 04, 2012, 09:07:29 PM »

Get professional advice.

In Scotland the law's different: we gave our daughter a house as a gift ("in love, favour and affection" as the document rather sweetly said) and didn't need to pay the taxman anything. I understand in England you might get stung doing the same thing.

Andy
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Capt Podge

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Re: Capital Gains Tax
« Reply #8 on: December 04, 2012, 09:08:16 PM »

Go for it Dan - I'm looking forward to the result, if only out of curiosity. O0
 
Ref the 30k gift - as far as I'm aware this would not be liable to tax UNLESS the donator were to die within 7 years - why ? I've no idea. Just something I read a number of years ago...things may have changed since then.
 
Regards,
 
Ray.
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Peter Fitness

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Re: Capital Gains Tax
« Reply #9 on: December 04, 2012, 09:13:32 PM »

In Australia, property owned pre 20th September 1985 is not subject to capital gains tax.


Peter.
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F4TCT

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Re: Capital Gains Tax
« Reply #10 on: December 04, 2012, 09:16:52 PM »

incorrect, i was told by a financial advisor you can gift upto 320k or something without tax, however you must live for atleast 7 years. Otherwise the limit is 249,999 or summet...


Basically mam and dad have set eyes on a house they want, they will not sell theirs quick enough to be able to get this one unless i intervene. However from what i understand about tax, when they sell theres, they are liable for capital gains because the mortgage is paid off.


And as far as im aware, you cannot gift a house in this country.


Dan
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Shipmate60

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Re: Capital Gains Tax
« Reply #11 on: December 04, 2012, 09:53:36 PM »

Dan,
Capital Gains tax is paid at 40% on any increase in value of any property not your primary residence for 12 months.
THe gift up to 320k is for Inheritance Tax, but unfortunately you could qualify for Capital Transfer Tax on any sum above I think 6K per year from each parent.
I would certainly get advice as if you provide bridging finance you can both claim tax relief.

You can gift a house in this country but it is treated as part of the Estate or liable for Capital Transfer Tax.
1 way to avoid Capital Gains Tax is to live in the property for a year as your primary residence then no Tax liable.

Bob
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NFMike

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Re: Capital Gains Tax
« Reply #12 on: December 04, 2012, 10:52:32 PM »

Because person A has techincally made a capital gain, are they liable for capital gains tax even though they owe the money to peson B?

I think you're overthinking this. What 'gain'. B has given a gift of 90k to A. (A happens to pay off mortgage - so what?)
B lends A 160k. A later pays this back.
At some point A buys a new house with a mortgage and sells his old house.

As long as the houses are A's primary residence then Capital Gains won't apply.
I don't think having a mortgage is of any interest to the taxman since tax relief on them was abolished. (OTOH the mortgage supplier (bank, b/s, etc) will probably have to pay tax on the profit they make from you in interest; but that's not your problem.)
The gift might be taxable under some rule, but if it's 'in the family' I'd very much doubt it except for the 7 year rule as mentioned.
If A pays B interest on the loan then B may have to pay income tax on the interest he receives (unless his total income is less than his tax free allowance).

So provided your parents don't pay you interest I can't see the taxman having any interest - except for the usual house moving expenses like stamp duty, VAT, etc.

F4TCT

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Re: Capital Gains Tax
« Reply #13 on: December 04, 2012, 11:09:03 PM »

Hmmm thats a good point...


So really then, the primary residence could be the house where the mortgage has been paid up by me. But when it comes to selling that house, can it still be a primary residence when they have infact another house with a mortgage... when can they stop that being a residence...


I hope you all understand what im trying to do here - basically provide the 160k in order to secure the new mortgage (they're getting old), so that all thats left is 50k outstanding on the property and so they will get a mortgage (considering his salary). Winter time isnt the best time to sell houses and so i fear they may be waiting a good few months etc.


Im currently in the process of buying my own, however luckily i will not be getting a mortgage.


The other solution would be for me to purchase the house and then rent it out.


Which leads to another question...


Would you rent 1 x 160k house out or 2 x 80k houses out...


Dan
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Liverbudgie

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Re: Capital Gains Tax
« Reply #14 on: December 04, 2012, 11:26:28 PM »


And as far as im aware, you cannot gift a house in this country.
Yes you can, my Father gave me the house I now live in as a gift. Not sure if the seven year rule applied but it made not difference anyway as he lived for longer than that.
However, you must get everything written down, signed and sealed by all parties. "Gentleman's agreements" in situations such as this can be, and often are, the cause of major disagreements within a family, especially if there are other siblings.
LB
 
 
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gingyer

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Re: Capital Gains Tax
« Reply #15 on: December 04, 2012, 11:34:55 PM »

Dan,
I think you may well be looking too hard at the problem here
but understandably so
(can see the headlines George Osborne hunts tax dodgers:Amazon, google, starbucks and Dan from MBM  :-))  )
 
anyhow, I think the best thing to do would go see the lawyer handling your new house purchase.
I had some major problems when my mum moved home.
she was the middle of a chain, the person who was buying my mums house decided that he needed a mortgage at 5pm the night before the move (apparently he had given CASH to his lawyer but the took it away at 5PM saying he now needed a mortgage  {:-{ {:-{  ) so that stopped the move as it would take 2-3weeks for him to arrange it, my mums bank would not allow for any financial help for 7-10 days loans/mortgage etc as she had only been with them 25years so could not do a proper background check before that
the lawyer (who also had arranged for mine a few years previous) arranged for my mortgage to be increased to buy the house IN both mine and my mums name. LloydsTSB (my mortgage company) then arranged for money to be sent to the lawyer to forward for the house. Once this "idiot" had bought my mums old house and the money exchanged I paid off the mortgage down to what it was previous and then my name was taken off my mums house. it delayed my mums move by a few days but it was done quick
 
 
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Liverbudgie

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Re: Capital Gains Tax
« Reply #16 on: December 04, 2012, 11:42:22 PM »

[quote author=F4TCT link=topic=40753.msg409016#msg409016 date=1354662543


The other solution would be for me to purchase the house and then rent it out.


Which leads to another question...


Would you rent 1 x 160k house out or 2 x 80k houses out...


 
Probably your best option; however, you will be liable for Capital Gains when you sell the properties that are not your residence. Personally, I would go for the latter, I'm presuming here that they are terraced type properties, in which case they will be easier to rent out. I would expect an income of between 450-600 per calendar month for each depending where you are, condition etc. Do it through an estate agent or other property agent though, and let them deal with all the hassle.
 LB
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F4TCT

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Re: Capital Gains Tax
« Reply #17 on: December 05, 2012, 01:51:02 PM »

Hi all,


I have spoken to a few folks at HMRC and it turns out the only concern capital gains have would be if i charged interest on the loan - to which i am not.


The sale of the house would be free from capital gains tax if it were sold within 3 years of the move out under the private residence relief thingy.


Inheritance said they dont really have any concerns unless i died, however as the money is under the limits, there would be very little they could do.


Otherwise the general rule was to write all this down and sign it to form a paper trail for evidence.


So I will look into this a little bit further and confirm that this arrangement is above board.


Dan
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Shipmate60

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Re: Capital Gains Tax
« Reply #18 on: December 05, 2012, 02:01:28 PM »

Dan,
Sounds good, it is usually best to chat to those who know.
Is there any way they would put their answers in writing?

Bob
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F4TCT

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Re: Capital Gains Tax
« Reply #19 on: December 05, 2012, 02:16:17 PM »

Well they have an information sheet available called HS283 which sort of answers the selling of the house thing.


The loan is a separate thing and as the amounts are under the limits, then there's little they could do. Another way round would be to 'trickle' money into the account to get round this.


Dan
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Re: Capital Gains Tax
« Reply #20 on: December 05, 2012, 05:21:01 PM »

The loan is a separate thing and as the amounts are under the limits, then there's little they could do. Another way round would be to 'trickle' money into the account to get round this.
I don't see how the loan comes into CG or inheritance at all. You are just acting like a bank but charging interest @ 0%, so there is no income tax to pay either.

If you rent the house(s) out you will of course pay tax on that income, as well as having a lot of other responsibilities. At that stage I'd certainly think it worth paying for professional advice.
Oh, and of course as those properties are not your residence then when you sold them CG would kick in, so don't buy them off your parents unless/until you are sure you want to go there.

F4TCT

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Re: Capital Gains Tax
« Reply #21 on: December 05, 2012, 05:26:41 PM »

Yeah, its just from what ive read in the past, the language seems to over complicate matters.


Obviously yes any rent gained on the property is subject to tax, however i believe this could be offset with something else like a mortgage if i could possibly do that...


Thanks for the comments chaps.


Dan
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Re: Capital Gains Tax
« Reply #22 on: December 06, 2012, 08:36:28 PM »

Seems to be confusion about three separate taxes. IHT is already covered. You can make capital gains of 10.600 pa before becoming liable for CGT. Mortgage interest, not repayments, and other non-capital expenses can be set against IT on rent.
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F4TCT

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Re: Capital Gains Tax
« Reply #23 on: December 06, 2012, 09:02:09 PM »

Well as far as the house is concerned, mam and dad i think paid 150k for it and will sell for 160k to keep the maths easy.


I have been told previous to making any phone call to hmrc that there are two levels of gift. When your alive and providing you stay alive for atleast 7 years after making the gift - you can give 320k. If you die within 7 years (assuming you knew you were going to die) then the limit is 249,999


Anyway, with this in mind, my concern wasn't inheritance tax (which is a gift as far as i knew). But i had read somewhere that if you bought a 2nd home, then the home you sold is subject to capital gains. after all, you surely cannot sell a main residence when you have another home to move into. HMRC cannot be that stupid.


But with speaking to them, they mentioned the private residence relief and so I feel a little happier that this very much above board thing is just that and also remaining tax free.


Paperwork will be created to support this.


Dan
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