Question:
I have paid for my father’s maisonette to be split into two flats. My father lives in one flat and the other is rented out. My father wishes to gift me the rented flat. What, if any, are the CGT implications? Also, the roof was not altered but was in a poor state and so replaced; can this be offset against rental income?
Arthur Weller Replies:
Your father is deemed to gift you the flat at its present market value. If this is more than the capital expenditure on the flat, which it most likely will be, then he will be deemed to be making a capital gain, on which he will be liable to capital gains tax (CGT).
This is the case even though you pay him nothing for the flat and it is a pure gift. Since it is a transfer between connected persons it is deemed to go across at present market value. As for whether the replacement of the roof is considered revenue expenditure or capital expenditure, please see the HMRC Property Income Manual page PIM2020:
It is explained there that if there is a significant improvement of the asset beyond its original condition then this is capital expenditure.
