I bought a second house as a cash purchase with the money gifted to me from my parents in 1997. My parents have been living in this house since the purchase, with me as the sole owner. My husband and I own our family house and both houses are on the same street so I can look after them. My parents have now decided to leave the UK and hence we need to sell the second house to raise the money for their move. My parents do not pay me any rent; however, the council tax, house contents insurance, gas and electric bills were in my dad's name all these years. I understand that the house my parents are living in is classified as my second home and hence subject to capital gains tax (CGT). I am wondering whether the fact that the cash for the second house was from my parents and with them living in that house since the purchase will make any difference on the CGT? I have also been told that (for example) I can add my husband, parents and my two adult children as joint owners to the second house in order to have a bigger pool of CGT allowance, i.e. six CGT annual exemptions rather than mine. Is this a workable approach, and are there any issues with it? I expect the house will generate a gain of £200,000 and hence I am seeking advice if there are any tax-efficient steps I can take to minimise the hit of the CGT to support my parents' move abroad. 
 
Arthur Weller replies: 
I would suggest that you consult a tax adviser, because if you look at HMRC’s Capital Gains manual at CG70230 you can see that you have a very good argument that you were merely the legal owner all these years, but your parents were the beneficial owners: (a) They provided the funds for the purchase originally; (b) they lived in the house; and (c) they are going to use the sales proceeds. If so, they are entitled to principal private residence relief on the sale of the house. See also CG65405 regarding a bare trust.