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Property gains

 

Written by Ray Coman

 

The UK property market continues to attract speculation. However, gains achieved on property can bring about significant tax exposure. Where a person owns a property which is not also their home a potential liability to capital gains tax arises. Typical situations include, a homeowner seeking to retain ownership of a former residence; a beneficiary wishing to invest an inheritance; and an international investor hoping to achieve financial security.


An increase in value on the owner's home is usually not liable to tax. This is explained in more detail in the guidance on principal private residence relief. However, gains on a property which is not the owner's home, regardless of whether it is rented, will be potentially liable to capital gains tax. The potential gain is consideration, less costs of sale such as conveyance and estate agent fees less purchase price and costs of acquisition such as stamp duty and legal fees.


Consideration is disposal proceeds where a property is sold or market value where a property is transferred as a gift. Where a property is sold for less than market value to a connected person, such as a family member, consideration is based on the market value of the property at the time of gifting. Transfers between spouses are deemed to take place for such consideration as gives rise to neither a gain nor a loss.

A capital gain may also be reduced by any improvements made to the property. The disposal is treated as occurring in the tax year of exchange of contracts, and the tax year runs to 5 April.

 

Please consult the following summary for the applicable rates and allowances for capital gains tax.

 

With experience advising on numerous issues around capital gains tax and other taxes related to property transactions, we are well placed to assist with your queries

Comments  

#4 Ray Coman, FCCA, CTA 2022-05-01 10:24
Dear Karen,

You are subject to tax based on beneficial rather than legal ownership. On the basis that you never lived in the property and will not obtain any value from it, either on imminent transfer to your brother or eventual sale, you have a strong case for maintaining that you were not beneficial owner.

Substantiation of the above in the event of any HMRC enquiry is complicated by having your name on both the land registry and mortgage. That is one reason a guarantor arrangement would have been more satisfactory. It is too late to consider guarantor at this stage, however I have raised this to illustrate how your account could be called into question.

Since the mortgage is paid, there would not be a stamp duty implication for your brother on receiving your gift. However, if your brother paid off your mortgage this would easily be construed as a form of rent agreement. Payment received for your property howsoever indirect could give rise to beneficial ownership and resultant CGT exposure.

If you made an unconditional gift to your brother, consider any inheritance tax implications. It is possible that if you pass away within seven years of the gift, that the property would form part of your estate for tax purposes.
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#3 Karen Aloe 2022-02-21 08:38
Own property jointly with brother 17 years as he could not get mortgage alone, I have never lived at property (have my own home), the mortgage is now paid & I wish to remove myself from property ownership so brother owns his own property 100% - will I have to pay CGT on the 50% I owned (no monies will be exchanged) on transfer of property to brother … trying to understand tax implications - appreciate any advice
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#2 Ray Coman, FCCA, CTA 2018-10-11 13:55
For capital gains tax, disposal of a property to a connected person will be treated as taking place for market value.
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#1 Michael Shonleben 2018-10-11 13:54
Can a company sell property it owns for a nominal fee or does it have to be market value?
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