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Living in a house before buying it – what is the tax position?
We (a married couple) bought a house on a mortgage for our foster son. He and his family then lived in it and still do. They have made many improvements, to house and land. We sold it to him in 2017, below the purchase price. Our questions are: (1) was he the beneficial owner, as he had the benefit of occupying it and the land? (2) what are the tax implications? At the time, a solicitor said to us that there would be no tax on this basis. 
 
Arthur Weller replies:  
If the market value of the house was higher in 2017 when you transferred to him than when you originally bought it, then prima facie you incurred a capital gain in 2017. However, there are two possible mitigating factors. Firstly, if he retained ownership of the improvements he did to the house, it could be that there would be no, or very little, increase in the value of the original house (without improvements). Secondly, if at the time you originally purchased the house, he became the beneficial owner, there was no transfer for capital gains tax purposes in 2017. It seems from what you have written that there was no documentation at the time. However, the fact that he occupied the house is one factor that points to the conclusion that he is the beneficial owner. See HMRC’s Capital Gains manual at CG70230 (www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg70230). 

This question was first printed in Property Tax Insider in July 2019.

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