cqpital gains tax on property lived in by relative rentfree

[Keenwa]

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?

Thank you. No they've never had a mortgage on it. She's always lived there rent free.

No major alterations have been made
There was a new boiler and a few small repairs.

Does this mean from what you say that they couldn't in fact set the estate agent fees or anything against capital gains tax?

SDLT? Sorry what is that?

assuming higher rate taxpayers captixal gains tax will be 28% - so £14k. But they are lots of deductions sonwould
be less than thst. They will have to pay stamp duty and fees for a new purchase. But if it’s increased by £50k they’re still quits in!

Sdlt is stamp duty tax

Thanks

Selling the house, assuming it is owned your parents jointly:

Sales proceeds
Minus selling costs (estate agent fees/conveyancing)
Minus cost of purchase
Minus purchase costs (Stamp duty, legal fees etc)
Equals profit.
Divide equally by each parent, each parent has £12,300 exemption. What is left after the exemption is taxable at 18% or 28% depending on their personal income.

If one parent has much lower income than the other and they are married it may be worth one spouse gifting their share to the other pre sale. Gifts between spouses are tax exempt.

They will need to inform HMRC of the sale within 60 days and pay the tax due. There is an online form.

If they gifted it to you, the sales proceeds figure would be a market value figure instead but same calculation would apply. As others have said if there is a mortgage you would have to pay stamp duty. If no mortgage then you wouldn’t.

@ChilliBandit thanks so much, so have I got this straight, they can deduct the cost of the purchase from the profit on the current house? So if they sell the current house and buy a new one there won't actually be any profit which Capital Gains would be due on? Each house would be a similar price.

Or have I totally misread you?

, That would be amazing if so and would probably remove their concerns hopefully

I just wish I knew where this figure of £30 to £40k was coming from. It cannot be true, maybe they got confused
.

Nope you’ve got it wrong

deduct purchase costs etc of the property that is being sold

@Keenwa - No, as @Teenyliving says, they deduct the cost of the house they are selling. For tax purposes the selling of the current house is completely separate to the purchase of the new house. In the nicest way OP you seem very confused by this, you need an accountant. It’s not a complicated situation tax wise so most will be able to help.

Yes I do know nothing about it - seems confusing or maybe I'm being a bit thick Thanks for your help anyway would you be able to tell me a good way to find an accountant?

Ah, so deduct the original purchase costs of the existing property, I see

Do you know anyone who is self employed OP? They might be able to recommend an accountant if they use one. Otherwise I’d ask for recommendations from friends or see if there was anyone local to you with good reviews online. Accountants don’t have to be qualified to use the title accountant but they do need to be qualified to use Chartered Accountant or Certified Accountant. That being said a lack of qualification is not necessarily the end of the world. Personal recommendation is the best way to go.

OK, cheers