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Archive for the ‘Tax’ Category
Wednesday, August 31st, 2011
Q My mother died 12 years ago, leaving her cottage to me and my brother. I inherited no money. The will stated that her second husband – my stepfather – could live in the house rent-free for as long as he lived, which was until quite recently. During that time I paid my share of maintenance costs for repairs, and my stepfather paid the bills.
I have now sold my half of the cottage to my brother. I have a valuation from the probate of £60,000 for the whole of the property (which seems very low), and I sold for £80,000. I am worried that my capital gains tax (CGT) liability may therefore be calculated on figures of £80,000 minus £30,000 minus my £10,600 allowance, ie my gain will be approximately £40,000. At a tax rate of 18% or 28% this seems to be an awful lot to have to pay on an asset that I had no choice about owning, no access to, and no opportunity to sell at any other time. Can you please advise what are the rules in this complicated situation? BP
A The fact your mother’s will stated that your stepfather had the right to live in the cottage until his death suggests that an interest-in-possession trust was set up. This would have given your stepfather the right to use the property in his lifetime, and you and your brother an absolute entitlement to the property on your stepfather’s death. Assuming that such a trust was created, the CGT position may be better than you think.
When your mother died the cottage became the trust’s asset, not yours. It became you and your brother’s asset only on the death of your stepfather, which would have brought the trust to an end. And there is usually no CGT to pay when beneficiaries (in this case you and your brother) acquire an asset on the death of the life tenant (your stepfather).
When calculating your own CGT bill your gain would be the amount your brother paid you for your share minus the market (not probate) value of your share at the date of your stepfather’s death (rather than your mother’s). As the market value of your share at the time of your stepfather’s death is likely to be nearer to what your brother paid you for it, your gain may well fall into the tax-free allowance of £10,600, or at least not exceed it by too much.
Posted in Capital gains tax, Features, guardian.co.uk, House News, Letters, Money, Property, Tax | Comments Closed
Wednesday, August 24th, 2011
Q I would be grateful for advice regarding my elderly aunt’s estate: I am her attorney and sole beneficiary in her will. She moved in with us several months ago and has expressed a wish to give her house to me now. I was wondering about the tax implications of this transfer of ownership, both for her and myself, and whether this would be different if the house is kept or sold. Also, is it possible to transfer ownership without incurring solicitor costs? DW
A To answer your last question first: yes, it is possible to transfer ownership of a property without paying a solicitor, by using the forms provided by the Land Registry. But there would still be a cost involved as you would have to pay Land Registry fees of between £50 and £920 depending on the value of the house.
As for tax implications, there would be no stamp duty land tax to pay as gifts of property do not attract this tax. However, there may be a potential inheritance tax bill if your aunt were to die within seven years of making the gift. This would also be the case if your aunt sold the house and gave you cash instead of giving you the physical property. But giving you cash could save you a tax bill, because if your aunt gave you the house and you subsequently sold it, you might have to pay capital gains tax if you sold it for more than it was worth when you were given it.
Posted in Capital gains tax, Features, guardian.co.uk, House News, Inheritance tax, Letters, Money, Property, Stamp duty, Tax | Comments Closed
Wednesday, July 27th, 2011
My parents’ home is partly in my name, but I want to make sure my siblings get equal share of the property when my mother dies
Q Twenty-seven years ago, when I was 13 or 14, my mother and father bought their council house. My elder siblings had left home by then and had bought their own homes and had their own families. My father and mother put the house in our (father, mother and myself) three names, although I was paying rent from the age of 16 until 30. At the time my siblings gave permission to put the house in my name.
However, I eventually bought my own house (aged 30ish) and lived in it for 11 years. I remortgaged it four years ago and bought another house in which I now live. I now rent my first home out but not for a profit, just making the repayment fees. I have now been told that I should pay tax on the rent, but I don’t earn profit. I was happy making my mortgage payments and having a reliable tenant. In the meantime, the rented house has devalued and so has the home I live in.
Also, it has always been my intention to sell my rented house after the death of both my parents and buy my siblings out of their share of our parents’ home. Legally they have no ‘official share’ but morally they have just has much right to it has me. My father has already died and my mother is 87 so I presume she will die in the next few years, but I don’t know what to do. Should I sell my rented house now (although the price has dropped considerably) or should I wait until after my mother dies, when I could be liable for heavy tax implications because on paper I have three properties? My two houses are both valued at £60,000 leaving a drop of £30,000 each from when I bought them. My parents’ house is worth roughly £100,000. CF
A First off, I think you should check the actual registered owners of your parents’ house at the Land Registry. Although your parents may have wanted you to become a joint owner with them, this would not have been possible when you were a young teenager as children can not own property until they become adults at age 18.
Assuming that you are not legally a joint owner of your parents’ house, the easiest way of making sure that you and your siblings all get a fair share of the property after your mother’s death is to encourage her to make a will leaving the property to you and your siblings in equal shares. That way, they will have an official share and you can offer to buy them out after your mother’s death.
Things could get a bit more complicated if it turns out that you do legally own a share of your parents’ house. But a lot depends on whether you and your mother inherited your father’s share of the property on his death or whether it all went to your mother. This should have been dealt with by a solicitor when your father died so it would be as well to check what the legal position is.
As far as the property you let goes, you should pay on any profit you make on the rent. If, however, you are not making a profit – which you are not if the rent only covers the mortgage interest you pay – than you don’t have to worry about a tax bill.
When it comes to selling the property you rent out, there will be a tax bill only if you sell it for more than you paid for it. Also, your mother’s death has no impact on the tax position of the let property and nor will the fact that you have three properties necessarily have heavy tax implications. When your mother dies, what will be taken into account for the purposes of inheritance tax is the value of what your mother owned and given that this seems to fall well within the nil-rate band for inheritance tax of £325,000 (in the 2011-12 tax year), there should be no tax to pay.
Posted in Borrowing & debt, Features, guardian.co.uk, House News, Letters, Money, Mortgages, Property, Tax | Comments Closed
Wednesday, July 13th, 2011
Q A relative of mine introduced me to one of the “innovative financing” options for buying a house without a deposit, called Creative Finance Facility. I am minded to steer well clear of it, but reading through their website I don’t understand how they work, and whether it really does represent a genuine option for a Londoner looking at a ridiculous deposit. I have tried researching it on consumer advice websites but they seem largely silent on the issue. MB
A I have looked at the Creative Finance Facility website as well, and don’t understand how its “revolutionary new facility” works either. The claim that you will be able to buy property without paying a deposit, stamp duty [land tax] or having to take out a 100% mortgage are pretty impressive. The phrase, “There’s no such thing as a free lunch” also sprang to mind, so if it were me I would steer well clear. But then I object to any website which makes you hand over a lot of personal information before it is prepared to spill the beans about what is actually on offer and what the true costs really are.
Posted in Features, guardian.co.uk, House News, Letters, Money, Property, Stamp duty, Tax | Comments Closed
Wednesday, July 6th, 2011
Q We are selling our main home where we have lived for 14 years, and are moving into a flat we have owned for five years, which is currently worth less than we paid for it. This is as an interim measure until we buy another main home (hopefully in less than six months). We will then sell the flat, probably at a loss. Would we be liable for capital gains tax (CGT) on our old main home because we will have been resident for a period in the flat? DM
A Moving into the flat has absolutely no bearing on any potential CGT bill on your main home. When you sell your home, irrespective of where you subsequently move, there should be no CGT to pay because of what HM Revenue & Customs calls private residence relief. This makes any gains on a property you have lived in as your home (or main residence) tax free assuming you lived there for the entire time you owned it and the size of the garden is less than half a hectare (which is a little over an acre).
Because you have let the flat you are temporarily moving into, there could be a CGT bill when you sell that, but only if you make a gain. As you think you will make a loss there would be no tax to pay, but make sure you keep detailed records of the loss as you can use it to set against any capital gains made in future tax years.
Posted in Capital gains tax, Features, guardian.co.uk, House News, Letters, Money, Property, Tax | Comments Closed
Wednesday, June 29th, 2011
Q We are thinking of buying a property to let to students, one of which would be our daughter. Can we let her live rent free, because if we had to give her money so she could pay the rent our own money would effectively be classed as income. What is the most tax efficient way to deal with this while not incurring the interest of the tax man? AG
A Yes, you can let your daughter live rent free, but there are tax implications. Allowing her to not pay rent but, presumably, charging the other inhabitants would mean you would be receiving below-market rent for the property. In the eyes of HM Revenue & Customs (HMRC) this would come under the heading of property let uncommercially, which affects the expenses you can deduct from the rental income.
Strictly speaking, the tax rules say you cannot deduct any expenses on property let uncommercially – whether it is rent free or at below-market rent. However, where you get some rent HMRC is prepared to bend the rules slightly and will allow you to deduct expenses up to the amount of rent received. So if you receive £6,000 a year in rent but pay out £8,000 in expenses, you’ll be able to deduct only £6,000 of your expenses.
This may not matter if you are buying the property outright, but if you are intending to use a buy-to-let mortgage you may not be able to claim all the interest as a tax-deductible expense. This will certainly be the case if the rent comes to less than the mortgage interest for the year.
So strangely, you may be better off giving your daughter the money to pay a market rent – and paying tax on it – as then you would be able to claim the full amount of tax allowable expenses. This could be worth more than the tax bill on the rent.
Posted in Buying to let, Features, guardian.co.uk, House News, Income tax, Letters, Money, Property, Tax | Comments Closed
Wednesday, June 22nd, 2011
Q My father died in November 2008 and my brother and I inherited his house. We have been very slow emptying and renovating it and I am only just getting round to filling in the AP1 and AS1 forms to re-register the property in our joint names. The Land Registry have told me there is no penalty for late notice of a change in the register, but they suggest I complete the forms as soon as possible to avoid the possibility of identity fraud.
My brother and I both own our own properties, neither of us want to live in my father’s house and I estimate it will take us at least another 6-12 months to make the property saleable. Are there any tax implications of completing the re-registration of the property sooner rather than later? My brother and I are both over 60, unmarried and have no dependents. BF
A The re-registration of your father’s property has no particular tax implications. When you and your brother eventually sell, when calculating the capital gains tax bill the date you acquired the property will be taken as the date of your father’s death, not the date you re-registered it. So you will need to know how much the house was worth at that date, which presumably you do since you should have had a valuation done when filling in the inheritance tax form for probate to be granted.
Posted in Capital gains tax, Features, guardian.co.uk, House News, Letters, Money, Property, Tax | Comments Closed
Wednesday, June 15th, 2011
Q My wife and I are purchasing a buy-to-let property. I am a higher rate taxpayer while my wife does not work, and thus has unused income tax allowances.
This property will be my wife’s project, so we thought of buying it in her name only with all income tax payable at her tax rate. However, we are conscious that that would mean we could only use one capital gains tax (CGT) allowance when we come to selling it. With that in mind it seems to make more sense to own the flat in both our names.
Is there a tax-efficient way we could achieve both goals, paying at a lower tax rate and using both CGT allowances when the time comes to sell? I wonder if my wife could gift me half of it at a later date, thus allowing us to use both CGT allowances when we sell it? SJ
A Yes it is possible – and within the tax rules – for your wife to own the buy-to-let property in her name solely, but give you half at a later date so you can benefit from two lots of capital gains tax allowances, which would be £10,600 a person in the 2011-12 tax year. And unlike gifts to non-spouses, gifts to a husband, wife or civil partner don’t attract CGT even though a gift counts as a disposal for the purpose of this tax.
What is slightly different, however, is that when you come to work out your gain on the sale of the property, it is assumed you acquired your gifted share on the date your wife acquired the property rather than the date the gift was actually made.
One other thing you need to bear in mind is that, if there is a mortgage on the property there may be a stamp duty land tax (SDLT) bill. If the amount outstanding on the mortgage at the time of a gift of property is more than the SDLT threshold of £125,000 there will be an SDLT bill. However, if you take over half the mortgage, SDLT is charged only on the amount of mortgage you take over. If there is no mortgage, however, you don’t have to worry about SDLT.
Posted in Capital gains tax, Family finances, Features, guardian.co.uk, House News, Income tax, Letters, Money, Property, Stamp duty, Tax | Comments Closed
Wednesday, June 8th, 2011
Q I have seen a house I want to buy, which is on the market for £150,000. If I buy it for that much will I have to pay stamp duty of 1% of the whole amount or just on the £25,000 above the stamp duty threshold of £125,000? LS
A Stamp duty land tax (SDLT) is charged on the full £150,000 purchase price, so the bill would be £1,500. That is assuming the property isn’t what HM Revenue & Customs calls residential property in a disadvantaged area. If it is there would be no SDLT to pay because the 0% threshold goes up to £150,000.
And if you are a genuine first-time buyer – meaning you have never owned any property before – the threshold increases to £250,000 (assuming you complete the purchase by 24 March 2012).
Also, provided the house is a new zero-carbon home you can get away with paying no SDLT on a property bought for up to £500,000 (until 30 September 2012).
Posted in Features, First-time buyers, guardian.co.uk, House News, House prices, Letters, Money, Property, Stamp duty, Tax | Comments Closed
Wednesday, June 8th, 2011
Q I have seen a house I want to buy, which is on the market for £150,000. If I buy it for that much will I have to pay stamp duty of 1% of the whole amount or just on the £25,000 above the stamp duty threshold of £125,000? LS
A Stamp duty land tax (SDLT) is charged on the full £150,000 purchase price, so the bill would be £1,500. That is assuming the property isn’t what HM Revenue & Customs calls residential property in a disadvantaged area. If it is there would be no SDLT to pay because the 0% threshold goes up to £150,000.
And if you are a genuine first-time buyer – meaning you have never owned any property before – the threshold increases to £250,000 (assuming you complete the purchase by 24 March 2012).
Also, provided the house is a new zero-carbon home you can get away with paying no SDLT on a property bought for up to £500,000 (until 30 September 2012).
Posted in Features, First-time buyers, guardian.co.uk, House News, House prices, Letters, Money, Property, Stamp duty, Tax | Comments Closed
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