My wife and I had our house converted into two flats in 2008. We own both flats; my wife and I live downstairs, and our son lives upstairs. We plan on doing an equity transfer of the upstairs flat to our son, so he will be the sole owner. We would like to know what the capital gains tax position would be upon the transfer.   

Arthur Weller replies 

Please see HMRC’s Capital Gains Tax Manual at CG65271 (tinyurl.com/hmrc-cg65271). It explains there that you look at the total value of the two separate flats on the date of the transfer or sale (‘A’). Then you look at the value of the unconverted house on the date of the transfer or sale (‘B’).  

A - B = the total capital gain (‘C’). C has to be apportioned between the two flats proportionate to their value. For example, if flat 1 is worth 40% of A, and flat 1 is the one transferred, then 40% of C is the capital gain on the transfer of flat 1.