Q In the year I am faced with the dilemma of what to do without a property in South-East England that I bought in late 2014 for £190,000. Almost all of the money for the purchase was provided by my father – who died in July 2020 – according to Stu. Although he died less than seven years after he gave the money to me, his estate (including the gift) was not subject to inheritance tax at a value below the nil rate of £325,000.
I am in the process of moving to Scotland with the intention of buying another property (this time with my partner) without selling my existing property. My plan was to rent out my current home for a while – due to the difference in property prices this would allow me to cover any mortgage payments on a new property and sell the UK property as a retirement nest egg 20 to 25 years down the line. Although I thought I could get some relief for the years I lived in the house, I knew I would be liable for Capital Gains Tax (CGT) during that time.
I was recently told by my family members that I should not pursue this option. Instead, I now need to sell the house in England and take the profit tax free, thereby avoiding paying tax. They then propose using some of the money to buy another cheap property and use that as an asset for future income. I pointed out that the increase in the value of that property would make me liable for CGT, and they seemed to think that the level of my current property, bought with gift money, would make me pay a higher bill. He warned that he might hit me with something unexpected in the differences between English and Scottish law. Now they say that taking a clean break can alleviate these potential issues.
I am struggling to find advice for my exact situation. I can’t find comprehensive guidance for each aspect individually, but there is nothing that deals with CGT on leased properties, gifted properties and the possible effects between English and Scottish law. I think there is too much worry about anything other than asking the question to smooth over family disputes. Can you help?
A Your family members obviously didn’t google “CGT in Scotland”; Otherwise, you know that the rules for calculating capital gains tax and inheritance tax are the same in the UK. The different taxes in Scotland are Scottish Income Tax and Land and Buildings Transaction Tax (LBTT) which replaced Stamp Duty Land Tax in Scotland from 1 April 2015. You are also aware that CGT in Scotland is calculated on UK thresholds. Scottish income tax bands, which means that if you’re a higher rate taxpayer in the Scottish system, you’ll pay a CGT rate of 18%, unlike higher rate taxpayers who still pay the highest rate. 28%
Heaven only knows what your family members have Googled with the fiction that CGT is affected by the way property is managed. The source of finance you used to buy your current home makes no difference to the final gain and therefore the CGT bill. Profit (or loss) is calculated as the selling price is less than the purchase price. Even if you give money for various expenses, take a loan or use the money you have saved in the mattress. I completely fail to see why the differences between English and Scottish law would affect your CGT bill, but perhaps your family members want to share their work.
I agree with your family that selling your current property and buying to rent in Scotland would be a better option but not for the reasons you give. Managing a rental from the other side of the country can be a bit of a hassle unless you pay a letting agent to make it seem more practical.
I wonder why you let your family interfere in your and your partner’s personal finances. I suspect it may have something to do with the money your father gave you, but that’s his business, not theirs, and certainly not mine.