HI,

We have clients, Male (M) & Female (F) with the following scenario:

Not married, never have been
Purchased property in 2005 for £117,500
Current Value - £135,000
Current Mortgage - £105,750
50/50 split in ownership

F is selling her half of the property to M (splitting up). she has never lived there (investment property) although he now is.

As I see it, F may be subject to CGT:

Her part of equity is £14,625, although she is looking to "sell" it to M for £12,000, therefore first question is will the CGT be based on the reduced £12,000 she is selliing it for or the actual real value of £14,625??

I believe she can offset (50% of) the original buying costs - we have some recorded such as Arrangement fee, Broker fee, solicitor fees. I believe there was no stamp Duty so not an option (if there had been, can this be offset for future reference?). Any cost in improving the property I believe may also be included?

Can anyone add anything to this or point me in the direction of someone / somewhere that can

Thanks

I am guessing neither client is an MP as this wouldve been engineered to avoid CGT!

CGT will be based on the market value, HMRC do not like things sold under value.
She can utilise her CGT allowance to mitigate the gain, which I make to be £8,750 (£135k - £117.5k) / 2)) Someone please correct me there.

To my knowledge any associated property upkeep and refurbishment costs are taken into account in the annual income tax assessment, and there is no relief for buying costs & stamp duty.

If at any time the property has been a Principal Private Residence to either of them this will have an impact as last three years of ownership are CGT free.

This is the infomation I "need to know" to talk to a client and then I would be straight on the phone to an accountant forr a definitve answer.

I agree with Confused that the gain can be offset by the client's CGT allowance.

I was unaware that any buying costs could be offset against a gain, so i'd be interested to know if that is the case.

Hi thanks for the replies so far.

I got the reference to buying costs from the DirectGov site for selling property that is not your main home as follows:

It's worth bearing in mind that:

when working out the chargeable gain you can deduct some of the costs of buying, selling and improving the property
if you have made a loss on the property, you may be able to set that off against other chargeable gains you may have
if you are living together you can transfer property to your husband, wife or civil partner without having to pay CGT, but if you give it or sell it cheaply to your children or to others, you may be liable to pay CGT

I think there has been a bit of confusion this end in treating the "Equity" she is effectively selling to M as the "gain" which on looking at your replies is a bit silly!! It makes obvious sense that the gain is simply the current value less the original value - ignoring any mortgage liability etc. in this case therefore, yes, the CGT allowance does seem to cover it without having to look at any other expenses etc.

For future reference however (for other clients who seem to be splitting up at the moment!) it would be good to know if anything can indeed be deducted as the Gov web site would indicate.

Thanks

Re. "Confused's" comment re. principal residence, I presume this would only apply if F had been living there as she is the one selling - although M has been living there and is staying there F hasn't and they have not been married so cannot nominate this as their joint principal residence - it was an investment / rental property (until he "did the dirty" and moved in it) and, yes, if he sells in the future I believe he will not have any CGT liabilities as it will be his main residence.

I didnt know that buying costs could be offset, I have learnt something!

Nice to see the forum is working!