An owner of an investment property makes a gift of half of the property to two family members before selling it. Will the CG on the original cost of the property to the final sale price be shared equally between the three? Is the valuation of the property at the time of making the gift of any relevance other than for stamp duty?
family members before selling it. Will the CG on the original cost of the
valuation of the property at the time of making the gift of any relevance other
No. Gifts are taxed for CGT purposes except between husband and wife (or civil partners) so the CGT on the gifts will be due when the gift is made and then the CGT on the remainder when the property is sold.
The gift also has potential IHT implications
If the owner gives half to two family members then the proceeds of the sale would be distributed 50% to the original owner, and the rest in the proportions that the other two people own the house.
The owner could gift just enough to the family members to use up the owner's CGT allowance in one year and then sell in the next (given that we're approaching the end of the tax year) or even do this over multiple years to use up all the gain in 10K chunks.
Also if the owner is sitting on capital gains losses (should that be capital losses?) on shares then they could sell them to offset the gains on the property (and could even buy them back again after a period - I think 31 days if they want to continue to hold them)
Note that gifts have to be true gifts - there cannot be an agreement for the recipient to pay the owner back the money when the property is sold. If the owner needs the money and the proceeds of the sale (e.g.to buy another house) are gifted back to them then HMRC are likely to look very hard at the transaction (if they know about it) but, for example, if the owner can demonstrate that he didn't need the money when he made the gift and, some time later, the recipient gifts something back to the owner (whether that be cash or something else) and, at the time the recipient makes a gift back it doesn't significantly disadvantage them then it's going to be hard for HMRC to argue that there was an agreement to do reciprocal gifts. (For most people, gifts of property are likely to be large enough that reciprocal gifts of that size are likely to appear linked even when separated by multiple years but some people can "lose" tens or even hundreds of thousands of pounds in the "noise" of their assets)
If the property is a house and owner has never lived in the house then the owner could make it his principle residence (he'd have to move in, not just say it's his PPR) which would then get 3 years PPR (and residental lettings relief if the property has been let). If the owner has already lived in the house then there's no gain by moving back in but check PPR and RLR which may cover most or all of the gains.
Tim.
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