What is the CGT position for each or any of us?

Question We gifted our children, Harry & Suzie, the money to buy a jointly owned flat in 2010. Suzie is getting married next year and wants to realise her equity so she can buy a property with her fiancé. Harry isn't ready to buy a property himself yet as his income is insufficient to get the mortgage he would need, on top of his equity in the flat. We also want to give them more money, as part of our inheritance tax planning, but we are asset rich and relatively cash poor so cash is not really an option. If Harry & Suzie sell the jointly owned flat, it should net them around £500,000. Suppose that Harry loans his share (£250,000) to Suzie. She then has £500,000 towards her new property. Harry lives in the other flat, which we own until such time that he is ready to buy his own place. We then sell the flat, which should realise around £650,000, pay the capital gains tax from the proceeds and gift the balance of £500,000 to Harry & Suzie between them. Suzie then repays the £250,000 that she owes Harry, who would then have £500,000 towards his own property. I understand that we would have to live seven years from the date of the second gift for it to be completely free of inheritance tax, but, as far as I am aware, this would not trigger any tax other than the capital gains on the second flat, which we would then be in a position to pay from the proceeds of the sale. Is that correct?

Arthur Weller replies:
Yes, it is correct. If it is possible to divert some of the £500,000 from the sale of the first flat (i.e. if Suzie could manage with less than £500,000), then it may be worth gifting the second flat to Harry now, and using the diverted funds to pay the CGT on this gift. Then any increase in value of the second flat would be covered by Harry's principal private residence relief, since he would live in it as his main residence.