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How do we calculate the capital gain tax?

Question:

Question: 

My dad bought a property for £450,000 in 2006. He has since extended into three flats and refinanced several years ago. The three flats are now worth £1.4 million in total. He wishes to retire and sell/gift one to me for below market value, with £625,000 left on the mortgage - is this even possible? The flat has a market value of £450,000 and he wishes to sell it for around £300,000. His aim I guess is to avoid a huge capital gains tax (CGT) bill. Any advice would be appreciated. 

Arthur Weller replies: 

Look at HMRC’s Capital Gains manual at CG65265, CG65270 and CG65271, which will give you an idea how to calculate the capital gain, depending on your circumstances. If the market value of the flat is now £450,000, then even though he is only charging you £300,000, nevertheless the tax rules state that he has to use the figure of £450,000 for his CGT computation (i.e. he is deemed to sell it for £450,000). In theory, he could sell part of the flat this tax year and part next tax year, thereby utilising two capital gains annual exemptions (£12,300 for 2020-21) to mitigate the capital gain. But by next year the capital value of the flat, and so the potential capital gain, may have increased. There is also talk of the Chancellor making the CGT rules stricter. So it may not be such a good idea to delay. If your father has a wife, maybe he could transfer part of the flat to her, before transferring to you, so as to use her CGT annual exemption. 

Question: 

My dad bought a property for £450,000 in 2006. He has since extended into three flats and refinanced several years ago. The three flats are now worth £1.4 million in.

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This question was first printed in Property Tax Insider in October 2020.