My father wants to give me his parking space. Do I owe capital gains tax? | Capital gains tax
Q My father is considering 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 purchased the same year as his house – and from the same developer – it was optional and there is a deed for the property and a deed for the parking space.
I’m assuming capital gains tax should be paid on the Â£ 12,300.00 allowance. I think the tax would be the same as a rental property ie 18% at the lower rate and 28% at the higher rate, but I’m not sure. Could you please confirm that this is the case?
A It is indeed true that with the exception of capital gains realized on your main residence, capital gains tax (CGT) is levied on most other profits made on the sale of land and of buildings. Tax is levied at 18% (if you are a base rate taxpayer) and 28% if you pay income tax at the higher rate.
You are also correct that the CGT allowance is Â£ 12,300 for the 2021-2022 tax year, like the last tax year.
But your thinking can be somewhat skewed if you think that the CGT allowance is applied to the selling price of the asset when it is sold because it is not. Rather, it is charged against your taxable earnings for the tax year. A taxable gain is obtained by subtracting the purchase price of a property from its selling price or, in the case of a donation, from its market value. You then subtract the costs associated with acquiring and disposing of the asset, such as legal and appraisal fees and property tax on stamp duties.
So if your dad bought the parking space for Â£ 15,000, gave it to you at a market value of Â£ 25,000 (to be determined by a qualified independent appraiser) and spent Â£ 3,000 on legal fees and valuation, his taxable gain of Â£ 7,000 would be well within the limits of his CGT allowance of Â£ 12,300 and no CGT would be due.
If, however, I am so disconnected from the value of the parking spaces and the taxable gain was over Â£ 12,300, the portion of the taxable gain over Â£ 12,300 would be charged at the CGT rate applicable to your tax situation. father. . The tax should also 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, the CGT would not be due because the inheritance tax outweighs the CGT after the death of the owner of the property.