Scenario

love2learn wrote: »

Hi,

My wife is a higher rate tax payer (40%). We're making some plans. If we move to another area we can sell our existing house and buy another outright with no mortgage. The plan is to put that house in my name as I just look after our son (no income)... that way if we need to move again in the future we can rent it out and reduce the tax liability using my tax free allowance.

If we then buy another flat outright at a later date, if that flat is then transferred into my name too, is there a CGT liability? I seem to remember reading something about one of tax free gifts and living 7 years. Does this mean that after making the first transfer of our main home, the flat would be liable to CGT as it's no longer a one off gift?

I'm confused. All very hypothetical, but I like to plan well in advance so I know what to expect.

potentially tax inefficient plan

- you are married, as you have discovered, gifts between spouses are free of CGT, but that is not the issue for you

- the house you will buy will therefore be classed as the marital home whether she owns it or not, but, if she does not own it then she does not have any entitlement to private residence relief (PPR)

- you plan to let the property in the future. A property which was once your PPR and is then let means you also get letting relief (LR). LR is worth up to £40,000 per owner. But if no claim to PPR then no claim to LR can be made.

- it might be better for you to co-own as Tenants In Common with her on 1% and you on 99%. That way she has a stake so gets PPR and LR. The fact she pays income tax on 1% of the rental profits may be a trivial sum compared to "you" as a couple missing out on available CGT relief when you finally sell. (Once it is let if you gift her an ownership after you've moved out she won't "inherit" a claim to PPR as she did not occupy it whilst an owner)