Do I pay CGT if I sell to a friend at minimum value

by Readers Question

8:57 AM, 16th January 2020
About 3 months ago

Do I pay CGT if I sell to a friend at minimum value

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Do I pay CGT if I sell to a friend at minimum value

I know that if I sell a property (never lived in it) to my son for what I paid for which was £49k and it is worth £175k that it will be treated as a gift and as such Capital Gains Tax (CGT) will be payable and IHT will also come into it.

However, if I sell it to a friend for £49k who is no relation to me at all (and I understand the risk of him then owning it, so do not need this pointing out) is it still treated the same for CGT purposes as being sold under value?

The friend would live in it for 12 months or so as his main residence (he currently has no main residence or buy to lets) and then sell it on open market and at a point in the future would give my son any profit made, keeping a little for himself.

Many thanks

Jackie



Comments

Grumpy Doug

17:12 PM, 23rd January 2020
About 2 months ago

Hi Silversurfer - I'm very glad that I came across this thread. I was playing with some ideas just a few weeks ago and looking at the IHT / CGT considerations of transferring our properties to our two sons over a period of time, and my thoughts closely matched your strategy. My wife and I are in our mid-late 50's so time (hopefully!) is on our side. I've calculated that we need about 15 years to mitigate the above to acceptable levels. I recognise that I will need my lawyer to draw up the necessary documents, but I wondered whether you were retaining the benefit (income) from the properties until such time as you don't need it? The provisional research that I have done suggests we could use a Declaration of Trust to cover this.

Grumpy Doug

17:46 PM, 23rd January 2020
About 2 months ago

Reply to the comment left by at 20/01/2020 - 17:24
Hi SS - just spotted your other post that refers to falling foul of gifts with reservation - good point and I will discuss with my lawyer. I'm sure though that I have seen reference to retaining the income via a DoT ...... I'm sure wiser heads will set me straight on this one

silversurfer2017

9:13 AM, 24th January 2020
About 2 months ago

Reply to the comment left by Grumpy Doug at 23/01/2020 - 17:46
Just a quick reply - IMO it is far easier just to give the correct share of income to your sons towards the end of each tax year say April 2nd or 3rd so they can account for it as income received in the correct tax year. I have all my properties on spreadsheets and all the boxes and headings on each spreadsheet correspond exactly with the property pages of the tax return. So I have box 20 for income and boxes 24, 25, 26, 27 and 29 for expenses similar labelled to the HMRC return pages and then box 38 (40) for net profit.
So the first worksheet will be for 100%, your next work sheet may be say for 80%, and your last worksheet will be for 10% for each of your sons. Your sons can have a printout of their spreadsheet and so have all the figures ready for their own tax returns. DON'T FORGET TO GIVE EACH OF YOUR SONS THEIR SHARE OF THE NET PROFIT BEFORE THE END OF THE TAX YEAR!
A simple receipt from each of them might be a good idea to prove you had paid out the income plus of course keep your bank statements. The capital gifts of the property would be subject to IHT but the income they receive would just be subject to their own personal levels of income tax.

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