Tom Mozy;303370 wrote:Afternoon,
I was chatting with a family friend at the weekend. They currently own a property which used to be their main residence for 24 years. For the last 8 years they have let it out while living in their partners home. (30 years total ownership)
The plan is she will sell her property this year once the tenants have moved out.
The plan for the sale proceeds would be to use around half of the proceeds for the purchase of a property near her partners home then gift the remaining equity to her two sons. (IHT 7+ years)
I informed her of the capital gain she will need to pay. Telling her to have a look at the private residential relief rules. Knowing her gain and therefore tax would be considerate it seem to put a damper on the whole idea.
Is there still capital gains to pay if you sold the house and used the full proceeds to buy a new house. Would this defer the capital gains for the 8 years of letting?
Anyone have any ideas how to extract equity without paying the taxman?
The conversation ended really by saying its better to bite the bullet and pay the tax man to achieve what you wanted to do and get advice!
Just interest in the opinions of the great posters on citywire.
Cheers
Unfortunately, given it was let out the Taxman wants his cake now. Thus even if the proceeds were used to buy a new main residence your friend will need to pay CGT as it was used for rental during their ownership. Some of the gain/pain can be mitigated via Private Residence Relief as you pointed out. However not all of it can.
There is a way to defer the gain but it will not release any equity at all. They can gift it to their children for Nil Consideration and then they can pay/avoid CGT but bear in mind that the in their calculations the price will be rebased to when your friend bought the house.
IMO best to bite the bullet if they need the equity. Also do not forget to claim for major improvements.