‘Do I have to pay capital gains tax when selling the home I bought for my disabled daughter?’

Linda J. Dodson

Every week, The Telegraph’s Property Doctors bring expertise on renovations and DIY, interiors, buying and selling, lettings, legal issues and taxes. Send your questions to  [email protected]

Q Please could you advise me whether capital gains tax is payable on the possible future sale of a flat bought for the sole use of a disabled daughter? 

A friend has advised me that it may not be but neither my accountant or solicitor was aware of this situation.

My daughter lives there rent free. She has suffered from chronic fatigue syndrome since the age of 11 (she is now 46). Apart from one or two short spells of employment many years ago, she has been unable to work.

My husband and I bought the flat around four years ago for £137,000 and then spent another £20,000 replacing the kitchen and bathroom as well as installing storage. The flat was recently valued at £179,000.

My husband is approaching retirement age and we are considering downsizing and relocating as a family. I would be most grateful for your advice on this matter.

VB, by email   

A Before considering anything more complex, it may help to think about how the capital gain would be calculated if taxed on you and your husband.

The starting point is the proceeds, which are assumed to be £179,000, less the acquisition cost of £137,000. You can also deduct any costs of purchase (including Stamp Duty Land Tax and legal fees) and any costs of sale.

Any improvement work on the flat that increased the capital value and is reflected in the property at the point of sale can also be deducted. If we assume the £20,000 is all allowable (although this would need to be confirmed), the estimated gain would be £22,000 (£179,000 less £137,000 less £20,000).

As the flat is held jointly, you and your husband would each realise a gain of £11,000. The annual exemption is currently £12,000 per person, which means if you and your husband did not realise any other gains in the year the house is sold, no CGT would be payable.

Stefanie Tremain is a Private Client adviser specialising in UK tax at accountancy firm Blick Rothenberg

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