This is something that follows from my previous question on CGTax
Suppose: I own a house as a landlord and since buying it for 40k in 2000, it has gained value of £80K. If I give half of it to my child, What CG tax do I or my child have to pay on the transaction? I can see there's a lot to it, but basically is there a directly associated tax penalty?
Thanks Tony
Such a gift is likely to have CGT and IHT implications.
Also, there may be complications if there is a mortgage attached to the property.
Yes. Gifting the half house, which appears from your figures to be worth £60k, makes you immediately liable for CGT on a gain of £40k, just as though you had sold it for £60k.
The child would have only to pay CGT on any future gain, when he or she in due course sells it. So if you later both sell your halves together, to another buyer, after a further gain of £20k on each half, then the child would have a gain of only £20k, but yours would be £60k. Both halves would have gained £60k, but the first half's initial gain of £40k was taxed on you at the gifting time, and the remaining £20k gain is taxed on the child at sale time. The second half's whole gain is taxed on you at sale time.
The difference with using a spouse rather than a child (or indeed anyone else) is that the transfer to spouse defers (does not eliminate but only delays) CGT liability relating to that transfer. So if you gave half the house to your wife, and then sold jointly after a further 20k gain as above, you would each be taxed on £60k worth of gain at sale time, with no-one being taxed at gift time.
And nicking the kid's share of the sale proceeds could earn you a 14 year holiday at HMP. :)
Hmm It wouldn't necessarily be a bad idea though, perhaps. It'd mean paying tax now rather than later, but we'd have 5 tax allowances thereafter. (1 wife 3 kids)
It would've made some sense to buy the investment house jointly between the 5 of us. (provided we don't fall out) ........
Could a group of landlords with similar houses use their CGT allowance each year by selling amongst themselves?
No plans to sell at the moment , but important to know in case we ever do.
Many thanks Tony
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