Q I have a problem over what to do with a property in south-east England, which I bought outright for £190,000 at the end of 2014. Almost all the money for the purchase was provided by my father – who died in July 2020 – as a gift. Even though he died less than seven years after giving me the money, there was no inheritance tax to pay on it because his estate (including the gift) was valued at less than the £325,000 nil-rate band.
I am in the process of relocating to Scotland, with a view, once settled, to purchasing another property (this time with my partner) without selling my existing property. My plan for a while has been to rent out my current house – because of the disparity in property values, this should cover any mortgage payments on a new property and allow me to retain the English property as a retirement nest egg to sell 20 to 25 years down the line. I’m aware that I would be liable for capital gains tax (CGT) at that point, although I think I would be able to claim some relief for the years I was living in the house.
I’ve been told by family members recently that I shouldn’t pursue this option. Instead, I should look to sell the house in England right now and take the gain tax free, thus avoiding a tax bill down the line. They then suggested using some of the money to purchase another, cheaper property and use that as an asset for future income. When I pointed out that any increase in value of that property would also leave me liable for CGT, they seemed to think that my current property’s status as being bought with money received as a gift would leave me liable for a far higher bill, and also warned that I could get hit by something unforeseen in the differences in English and Scottish law. They say that a clean break now would alleviate these potential issues.
I’m struggling to find advice for my exact situation. I can find general guidance for each facet individually but nothing that brings together CGT on rented properties, properties purchased with gifts and potential effects between English and Scottish law. I think there’s a lot of worry over nothing but need to ask the question to defuse family arguments. Can you help?
RM
A Your family members clearly haven’t Googled “CGT in Scotland”; otherwise they would know that the rules for calculating capital gains tax – and also inheritance tax – are the same right across the UK. The taxes that are different in Scotland are Scottish income tax and land and buildings transaction tax (LBTT) which has replaced stamp duty land tax in Scotland since 1 April 2015. They would also know that CGT in Scotland is calculated on the UK thresholds rather than Scottish income tax bands, which means that if you are a higher-rate taxpayer under the Scottish system you still pay the basic rate of CGT of 18% unlike higher-rate taxpayers living in the rest of the UK, who pay the higher rate of 28%.
Heaven only knows what your family members Googled to come up with the fiction that is saying that CGT is affected by the way the purchase of a property is financed. The source of the money you used to buy your current home makes no difference to the eventual gain, and so the CGT bill. The gain (or loss) is calculated as the sale price less the purchase price less various expenses whether you were given money, took out a mortgage or used the cash you had stuffed under the mattress. I completely fail to see why differences in English and Scottish law could affect your potential CGT bill but perhaps your family members would like to share their workings.
I do agree with your family that selling your current property and buying a buy-to-let in Scotland would be a better option but not for the reasons they give. It just seems more practical as managing a property rental from the other end of the country might be a bit stressful unless you paid a letting agent to do it for you.
What really puzzles me is why you are letting your family interfere in your – and your partner’s – personal finances. I have my suspicions that it may have something to do with the money your father gave you but that was his business, not theirs, and definitely not mine.
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