I was gifted my parents’ house in April 2014 at a value of £150,000: 50% to my sister and 50% to me. Both parents are now deceased and we are putting the house up for sale; the guide price was £190,000-£210,000. Due to a family breakdown, my sister does not wish to receive the proceeds of the sale and is in the process of transferring her share to me so that I own the property 100% – this will shortly conclude. The house has been put up for sale and I have accepted an offer of £220,000. I own my own property, so I will not qualify for principal private residence relief and I am aware both my sister and I will be treated as ‘connected’ persons. My sister’s capital gains tax (CGT) gain will be, I assume, £75,000 to either £95,000 or £105,000 (half the guide price, as this would be adjudged market value) when she disposes or transfers her 50% share (for free). However, for CGT purposes when the house is actually sold, I am unsure what figure to use for my purchase price. Will the purchase price default to £150,000, or will it be £190,000 or £210,000?
Arthur Weller replies:
Firstly, I would suggest that the current market price is not the guide price of £190,000-£210,000, but instead is £220,000 because you have a third-party purchaser who is willing to pay this. This market price should be used for transactions between you and your sister since you are connected persons, as you have written. See HMRC’s guidance in the Capital Gains manual, at https://tinyurl.com/2p8sf49p. So she is deemed to transfer to you at £110,000. At CG14530 it states, ‘The same figure is used as the acquisition cost of the person who acquires the asset.’ So you are making two sales. The original half, for which you have a base cost of £75,000, and the second half, for which you have a base cost of £110,000.’