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Original poster

cqpital gains tax on property lived in by relative rentfree

62 replies

Keenwa · 30/09/2022 15:05

I hope somebody might know something about this. I could really do with a bit of guidance.

A few years ago my elderly parents bought a small house for a younger family member and her children, as she was about to be made homeless. My parents are pretty well off although they don't think so She has many problems and has suffered abuse. She claims benefits, but not housing benefits as this would be against the rules (would be considered 'contrived tenancy'). So they get no rent from her and receive no financial benefit from her living there, apart from the rise in value of the house.

For many reasons which I won't go into here, she urgently needs to move to a different area. I asked my parents to help with this by selling the property and buying another of the same value in the other area. Unfortunately parents have been advised by a friend that to do this would mean a huge capital gains tax bill , as the current property has increased in value by £50k. Plus stamp duty at a higher rate on the new property as it is not their own residence. Plus estate agent fees for selling the current property (around £2K) Plus legal fees around the same. Therefore they think that by doing this it would cost them £30k to £40k. So they won't do it. Is this really true when they are not making any profit from the situation?

My young relative's situation is pretty bad and it is affecting the children's health and welfare. Can anyone tell me if this is true about the amount it would cost them and is there any way around this?

A few days previously they had said (their own suggestion, not coming from me at all) that they would put the property into my name, to help me avoid inheritance tax when they die. If they'd have done this I would have happily arranged changing the property for her. Then they decided, no they weren't doing that as it wouldn't affect inheritance tax after all. That was the reason they gave. But I currently don't own a property myself (although we could afford it), we're temporarily renting. So wouldn't that solve the problem or would capital gains be due if they gifted it to me? Or directly to the young relative in question?

What is the best way forward as this is not going to be a temporary problem for her?

Any ideas?

I am asking on here because I don't know who I should ask, tax lawyer , accountant or who?

OP posts:
Doingprettywellthanks · 30/09/2022 15:11

Didn’t they have to go pay stamp duty and CGT on the first property they bought for her?

Doingprettywellthanks · 30/09/2022 15:12

Sorry I see they didn’t sell.

yes to the costs.

My parents are pretty well off although they don't think so. Well they did an especially kind thing if they don’t think they are well off but still bought a property for a relative

Doingprettywellthanks · 30/09/2022 15:14

If she need to move but can’t afford it she needs to get on the council housing register and receive housing benefit.

it doesn’t work for your parents and they shouldn’t be made to guilty

MsPincher · 30/09/2022 15:19

Yes they will have to pay CGT on the sale of the existing property (only sole residence is exempt). They will also have to pay stamp duty on any new property purchased including the additional dwelling supplement.

kerosene20 · 30/09/2022 15:19

But they are getting a financial benefit - the rise in value. That is exactly what CGT is on. If they gift to you or someone else , if they don’t survive 7 years then the gift may be taxed at a rate of 40%. They need advice from a solicitor or accountant.

Xiaoxiong · 30/09/2022 15:19

Their CGT due, if they sold the house, would depend on what rate taxpayers they are so it could be as high as 28% or as low as 18%. So I don't think anyone can help on that question.

The best thing you can do is take an enormous step back from this whole situation and stop being the conduit for these discussions. Why are you asking your parents to sell and buy another house on behalf of someone else, instead of the relative living in the house discussing with your parents? Why discuss inheritance tax if they're just going to do what they like anyway?

Point your parents in the direction of a financial advisor or a good accountant that does tax planning, and assume they're leaving all their money to a donkey sanctuary. Then anything you might inherit will be a nice and unexpected surprise, but you won't be disappointed or feel judged if you get nothing. If they try and talk to you about it just tell them you are happy with whatever they think is best. Honestly this is the only way to keep family harmony.

Tell relative they need to discuss living situation directly with your parents. If they really want to support this relative in a new area they could rent the current house out and pay relative an allowance, or pay relative's rent elsewhere. But they'd need to consider the tax and regulatory implications of becoming a landlord too.

Turmerictolly · 30/09/2022 15:20

An accountant who specialises in property would be best to ask. I think they will be liable. There will also be issues if they buy or gift you the property, for you and for them.

MSE has a talk forum for housing with lots of knowledgeable people on too.

Doingprettywellthanks · 30/09/2022 15:20

By the sounds of it your intention of going to a solicitor about your parents property is to find out whether what they’ve told you “is true or not”

It is. But says a lot about how you view them

Original poster
Keenwa · 30/09/2022 15:21

Anyone who knows about this? The council would not house her, she has enquired. She has to be in a specific area. It's not some whim.

OP posts:
Doingprettywellthanks · 30/09/2022 15:21

Keenwa · 30/09/2022 15:21

Anyone who knows about this? The council would not house her, she has enquired. She has to be in a specific area. It's not some whim.

the council have told her what?

yes she will have to move to council property or a landlord who accepts housing property.

Doingprettywellthanks · 30/09/2022 15:23

A mother in “desperate” need to move will be supported by the council, but she may have to wait.

Original poster
Keenwa · 30/09/2022 15:25

Doingprettywell can you stop replying please you're unhelpful and obviously don't know much anyway.

I am not asking for anything for myself! And they have indeed not given me anything. But I would be happy to reduce my own inheritance to help poor relative.

I guess I framed the question wrong and should perhaps have made it a bit more neutral.

OP posts:
Doingprettywellthanks · 30/09/2022 15:26

I have told you that the costs involved you list are correct.

i have told you that your relative will be supported by the council if she is in “desperate” need of housing for her and her children but she may have to wait.

Doingprettywellthanks · 30/09/2022 15:27

Your elderly parents to buy a property a mere few years ago and then face the rigmarole of now selling and buying another one - I can’t quite understand their reluctance due to costs

GoldenMalicious · 30/09/2022 15:27

I am no expert - just saying that upfront.

My understanding is that capital gains tax would be due if they transfer the property to another owner - whether through sale or transferring ownership to you. The only time it wouldn’t apply would be your parents died and the property would be assessed as part of their estate for inheritance tax.

Having said that each of your parents should have a CGT allowance that would reduce the tax payable - it was £12.3k each last time I looked. In which case CGT would be due on (50 - 12.3 - 12.3) or £25.4k - assuming your parents jointly own the property. If your parents are higher rate tax payers then CGT should be 28% of this so c£7.1k between them.

You are right about stamp duty at the higher rate - obviously the £ charge will depend on the value of purchase.

Original poster
Keenwa · 30/09/2022 15:28

Trust me, you don't know the full story. I can't put it on here, already worried it might be identifying. So please stop.

OP posts:
satelliteheart · 30/09/2022 15:29

Yes they will be liable for capital gains tax and legal fees for selling and buying and estate agent fees and stamp duty on the new property (including the additional 3% surcharge as it's not their own main residence). You can't say "they are not making any profit from the situation" in the same post as "the property has increased in value by £50k". They've clearly made £50k profit if they sell.

If they were receiving rent (which is what I presume you mean when you say "no profit") they'd be paying income tax on that profit. Cgt is payable on the increase in value of the asset (ie the £50k).

Gifting the property to you could also have a negative impact (inheritance tax, deprivation of assets if they require care in the future, and they'd still be liable for cgt on the market value of the property)

whirlyhead · 30/09/2022 15:31

Ask an accountant - always the best thing to do.

Individuals do have a capital gains allowance of £12,300 in the tax year, so if the property is in both their names, that would mean £24,600 of the profit is exempt from taxation. They will obviously have to pay sales and legal fees for the sale of the existing property and purchase of the new one, plus stamp duty for the new property, and if they already own a property, they will pay the higher rate of stamp duty.

They have made a profit from the situation as the property has increased in value.

Original poster
Keenwa · 30/09/2022 15:32

Thank you Satellite, so what rate would the CGT be do you know? Property was £150,000 now valued around £200,000.

OP posts:
Xiaoxiong · 30/09/2022 15:33

You need to leave them to it. If they want to go see a financial advisor for tax planning, then point them in that direction. None of that part of this problem is yours to solve.

Focus on your relative - get her on council lists in the area she needs to be, get her applying for any benefits to which she may be entitled, help her find work (or more work) to pay rent, help her as much as you can to get earning eg offer childcare or whatever support she needs where you are able. That is something practical you can do for her right now - you can't do anything about your parents' financial planning unless they ask you for help.

tigger1001 · 30/09/2022 15:34

There will be capital gains tax if there is a sale of the property or if they gift it to you as they have disposed of the property.

The stamp duty and legal fees on purchase are allowable against the gain as are the legal fees on sale. And each of your parents (if held in joint names) will have a capital gains tax allowance of £12,300 (assuming they have not made any other disposals in the tax year)

Any chargeable gain on uk residential property now needs to be declared to Hmrc and any tax paid within 60 days of completion.

Xiaoxiong · 30/09/2022 15:34

If they're higher rate taxpayers, they'll pay 28% on the profit.

Xiaoxiong · 30/09/2022 15:34

(Above their personal CGT allowance)

Original poster
Keenwa · 30/09/2022 15:35

So whirlyhead, it could be that only half of the profit is liable for the CGT? That would be much better Unless they have used CGT on something else I'm unaware of. I just don't see how they came up with £30 to £40K, it seems excessive.

OP posts:
YoBeaches · 30/09/2022 15:35

Everything everyone has told you is correct.

They could rent out the house now and use the income to rent another house for her.

The family Member should contact the council again but it maybe that her reasons a for leaving aren't enough to qualify given she has a home to live in.

She could contact womens aid for their input.

She could love in with you?

Can she work, in order to pay rent independently and break the dependence?

How long did you expect your parents to support her, and how long did they want to do it for.