Question: My sister was really struggling financially following her divorce, so my husband and I bought a small apartment for her five years ago and we are trustees of the property. She now has a new man in her life and wants to move out of our flat to live with him.
We have decided we would like to sell the flat. However, it has gone up in value a lot and we are worried about capital gains tax. My husband and I own the house we live in with our children, so will the flat be treated as our second home - and will we have to pay capital gains tax on it?
Answer: It all depends on how you and your husband held the property. You mentioned that you are both trustees of the flat. However, I am unsure what you mean by this.
It could mean that when you bought the property, although it was registered in your names at the Land Registry you had a formal declaration of trust which laid out the terms under which your sister was entitled to live there. If this was the case, then if the flat qualified as your sister's only or main private residence it is possible that any gain realised on the sale would be exempt from capital gains tax.
If, however, you and your husband bought the property as your own and just allowed your sister to live there to help her out, and there was no formal trust, the capital gains tax payable on any sale would be your responsibility.
So the liability for capital gains tax will depend on the terms of any formal trust which existed, and upon the way in which your sister has used the flat.
It would be wise to seek advice from your solicitor or accountant before selling so that you can do so in the most tax-efficient way.
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