At what point do you pay Capital Gains Tax?

6 comments

1. You incur a (potential) liability for capital gains tax when you sell, not when you buy. You typically pay the tax after declaring the gain on a Self Assessment and they bill you. But if it’s your residence then you will probably avoid CGT due to Private Residence Relief: https://www.gov.uk/tax-sell-home

   If your Nan sells you the flat under market value and then dies within seven years I think the difference in value would likely be considered a gift for inheritance tax purposes.

   Also be aware that if your Nan is expecting to need public funding (benefits) for her care then selling her home under value may be considered Voluntary Deprivation of Assets and may impact on that. (This may be the biggest issue with this plan.)

2. You’re liable for CGT when you ‘dispose’ the asset.

3. This is definitely one where it’s worth paying an accountant for proper advice. HMRC wouldn’t even know about it, but if she dies within seven years there are inheritance tax implications, and if you sell the house there are cap gains to consider at that point.

   Both of these, they can come after you in the future. So even if you’re sure you got it right, you could find yourself with a letter from HMRC a few years from now demanding tens of thousands of pounds, so it’s really not something you want to get wrong.

   Do you already own property or would this be your only one? That affects it too.

   But yeah the issue is that she’s effectively gifting you £60k. In itself that doesn’t attract tax, but if she dies then it does.

   But generally cap gains is due when you sell something for a profit, not when you buy it. So say you bought it for £150k and she dies the next day; you’re now liable for inheritance tax on that.

   Then, you decide you have to sell the house to pay that bill. If it’s not your only property, you now have to pay cap gains on the profit. You got it for £150k, sell it for £210k, you’ve technically just made £60k and that will attract cap gains thus making your tax bill more complicated.

   This is a worst case scenario and it’s almost certainly not that bad, but as I say it’s well worth getting a proper professional opinion even if it costs you a couple of hundred quid. Especially as we don’t know how much other cash and assets and family she has, it can get quite messy.

4. Might be best off asking this in r/UKPersonalFinance.

   But from my knowledge, you will only pay capital gains tax if you purposely sold the property for a profit. So if you plan to live in it and sell in so many years time to upgrade or move somewhere else then you don’t have to pay.

   It’s typically a tax for people who are making profit from buying homes, such as a developer buying a run down property for £50k. Invests £10k into doing it up and then sells for £100k

5. To just (very simply) elaborate on inheritance tax as mentioned by another commenter –

   You need to pay tax on inheritance. You don’t need to pay tax on gifts.

   Older people sometimes gift some of their estate early, in order to avoid inheritance tax having to be paid.

   So the govt closed this “loophole” – if you’re gifted something from a relative, who then dies within 7 years of that gift, you are then liable to paying inheritance tax on that.

   This would be considered as part of the above. You’re being gifted a house (less the outstanding loan). Should your Nan die within 7 years, you would potentially be liable to inheretance tax.

   The threshold is 325,000k. So you’re OK as things stand, as you’ve only “inherited” 60k. If you were to subsequently inherit or be gifted more that would take you over the 325k threshold, then you would be liable.

6. Just to check, does she have a lasting power of attorney?