Adam asks: “My dad owns a ground floor flat and he is gifting it to me. He bought the property for £150k, it’s now worth £160k but needs about £10k spent on it to make it properly habitable. What would be the CGT situation here?”
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Q&A 49 – Capital Losses On Gifts – Shownotes
Today’s question comes from Adam:
I was wondering about a situation where my dad owns a ground floor flat in his sole name. Last year he purchased the flat above his, the 2 properties were originally a single property.
He was thinking of renovating the flat then gifting it to me and my sister. What would be the CGT situation here?
He bought the property for £150k, is now possibly worth let’s say £160k but needs about £10k to spend on it to make it properly habitable. After costs it could look like it would make a loss based on the original value.
On disposal, does the flat need revaluing after the work has been done which will obviously increase the price of the flat or could it be a possible loss and offset capital gains made elsewhere?
May be a tricky one I know, but some guidance would be great!
Questions On Capital Gains Tax
Thank you for your question Adam.
We get a lot of capital gains tax questions, and I think I know why. Because it’s pretty darn tricky. Therefore, I hope you guys aren’t finding them too boring but I’m going to answer all of them that come my way.
If you’ve got a question, I’d love to hear it. Don’t be shy.
Right, back to Adam’s question…
Capital Losses On Gifts To Related Parties
Adam, your father would need to value the property he his gifting to you at the market rate (which could be obtained from a survey valuation or from an independent estate agent). From that figure, he could then reduce the cost price (£150k) and the costs he has incurred to make it habitable (as this would be considered to be improving the property).
If this were to come to a loss making position, this could theoretically be placed (or rolled forward) against other gains of a similar nature. However, he may not be able to do this due to the following restriction on recognising capital losses:
However, you can’t deduct a loss from giving, selling or disposing of an asset to a family member unless you’re offsetting a gain from the same person. This also applies to ‘connected people’ like business partners.
Therefore, if your father gifts it to you and your sister, he actually would not be able to use this capital loss against other capital gains or carry it forward to future years.
Hope that helps.
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