Pedro_79

All hypothetical, obviously

So, this guy (now retired, in his late 50s) got married 25years ago, bought a house with his wife, and had a kid 5 years later. When the kid was 5, he left his wife for another woman, divorced and remarried the new woman. Still with me?

Right, as part of the settlement to his ex-wife, he was ordered to pay the mortgage on the former family home, in lieu of child maintenance. The house remained in joint names of the child's mother and father. He has lived with his new wife in her house (in her name only) for the last 15years, and has another child with her.

So, the question is.. now that his first child is grown up and the mortgage is payed off, he wants to 'gift' his half of the house to him/her. Can he do this without having to pay CGT, or it being held-over for the child to pay in the future?

I've read the direct.gov and HMC guides in depth, and there are no examples that mirror this situation. I can obviously have an educated guess, but is there anyone here that can give me a more certain answer? Thanks in advance

Frosty The Snowman

As far as I understand he can gift it now and just as long as he doesn't kick the bucket in the next 7 years there will be no CGT liability. There will also be a decreasing liability for the next 7 years just in case he does kick the bucket. One over-riding point is he must not get any benefit from the house once it's gifted, everything must go to the kid.

Pedro_79

That's what I thought, but then I saw this on the HMRC website :-

Quote:

If you give an asset away

If you give an asset away, you normally look at what it is worth, not what you get for it. The same is true when you sell it for less than its full worth in order to give away part of the value.



<B>

Example 2
Three years ago, you bought a flat costing £75,000 for your daughter to use.
The flat is now worth £100,000.
You now give it to your daughter.
She might not pay you anything for it; or you might let her have it for less than what it is worth, say she pays you £60,000.
Either way, you have made a gain of £25,000 (£100,000 less £75,000).

</B>

Anyone shed any more light on my (hypothetical) situation?

TopBanana

No that's IHT.

The question is whether CGT is due on half the appreciation because it hasn't been his primary residence. I would guess not, as it isn't being sold but you should speak to a tax lawyer or even the IR themselves - just give them a fake name

Frosty The Snowman

D'oh just thinking along the wrong lines there. I would hazard a guess that CGT would be due as it's not the guys primary residence as TopBanananana said, but of a git really.

The tax would presumably be due on the difference in value from when he moved out, I'm guessing it was valued for the divorce, to when he gifts it to his kid.

Do check with someone fully qualified as there maybe a loophole for this sort of thing.

Pedro_79

Ok, thanks for your help so far guys.

But this 'primary residence' thing.. is it purely based on where you live, or property you own? Because technically, the bloke in question only owns one property - it's just that he doesn't live there.

This sort of ridiculous tax really gets up my nose - Like you say, there may be a 'loophole', but surely there should be some official recognition of this situation, and relief based on it?

I might write a strongly worded letter to Mr. Blair

TopBanana

Yes, it's where you live. If you don't live there, it's seen as an investment.

Calm down dear, you don't even know if CGT is due. I strongly doubt it is.