Q My father is thinking of giving me the parking space he owns near his home but wants to know if capital gains tax has to be paid.
Although it was bought in the same year as his home – and from the same developer – it was optional and there is one deed for the property and one deed for the parking space.
Do I have to pay capital gains tax when I sell my flat because I had two lodgers?Read more
My guess is that capital gains tax would have to be paid over the allowance of £12,300.00. I believe the tax would be the same as for a buy-to-let property, ie 18% at the lower rate and 28% at the higher rate, but I am not sure. Could you please confirm that this is the case?
A It is indeed the case that – with the exception of gains made on your main home – capital gains tax (CGT) is charged on most other profits made on selling land and property. The tax is charged at 18% (if you are a basic-rate taxpayer) and 28% if you pay income tax at the higher rate.
You are also correct in thinking that the CGT allowance is £12,300 in the 2021-22 tax year, same as it was for the last tax year.
But your thinking may be somewhat skewed if you believe that the CGT allowance is applied to the selling price of the asset when it is disposed of because it isn’t. Rather it is set against your taxable gains for the tax year. A taxable gain is worked out by subtracting the purchase price of an asset from its selling price or, in the case of a gift, its market value. You then subtract costs associated with acquiring and disposing of the asset, such as legal and valuation costs and stamp duty land tax.
So if your father bought the parking space for £15,000, gave it to you at a market value of £25,000 (which has to be determined by a qualified independent valuer) and spent £3,000 on legal and valuation costs, his taxable gain of £7,000 would be well within his £12,300 CGT allowance and no CGT would be due.
If, however, I am so out of touch with the value of parking spaces and the taxable gain was more than £12,300, the part of the taxable gain over £12,300 would be charged at whichever rate of CGT was applicable to your father’s tax position. The tax would also have to be paid within 30 days of the disposal of the asset.
If your father left the land to you in his will rather than giving it to you now, CGT would not be payable because inheritance tax trumps CGT after the death of the owner of assets.
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