Capital Gains and selling to yourself

Horlock

Just wondering whether there is any way to sell property to yourself in order to avoid capital gains tax.

Story is we have a house that we have lived in for a long time, and its current value is well above what it was when we bought (even after the crash!)

If we sell the house now we wont have to pay any capital gains tax.

If we rent the house out (as is our current intention - we have no reason to sell), then we will become eligible for capital gains tax on all profit above the purchase price. I know that we will get discount for all the years we lived there (+3), but we will end up paying tax on the increase that we shouldn't pay on.

I want to know whether there is a way to sell the house now to ourselves for its current value, and be eligible for all gains on its current value instead of a proportion of all gains from its original value.

Obviously if I sold my house to my neighbour and bought theirs then I would achieve what I wanted. If I sold my house to my parents and bought it back for the same amount within a week I would achieve what I want. However, neither of these options are satisfactory because of the hassle.

I want to sell the house to myself. Is there a legal way of doing this. I know that I would have to pay stamp duty now, but that is considerably less than 18% of the profit (or even a fraction of the 18% of the profit). I don't mind removing my wife's name from the deeds, or adding another name (eg my son who is a minor - don't know if this is legal?)

The property is currently mortgaged and will be remortgaged within a month of today, so now is the opportune time.

Please keep advice on topic. This isn't about evading tax, it is about avoiding it if it isn't necessary. Please no comments about "so I should pay my tax and you don't have to pay yours etc etc". Or suggestions about sell the house and buy another one instead. A simple definative yes or no, but based on fact rather than instinct greatly appriciated.

Thanks in advance.

CLAPTON

presumably you know that as well as the period of your residence being expempt from the CGT and the last 3 years and you get a letting relief and you have a CGT allowance, currently 10,100 (double if jointly owned)

so unless the house is going to appreciate a lot then your CGT payment may well be zero.


without any numbers its impossible to work anything out

Elaine_Wilson

You appear to be very pessimistic about future house prices. If you can achieve what you are proposing then bear in mind that future increases in value are all taxable. I've just had a dabble at some numbers and the results are surprising.

Just as an example I based some figures on a property I know. Cost £90,000 in 1989 and worth £300,000 in 2009. 20 years of private residence and sell in another 20 years time.

If the property is worth more than about £390,000 then doing nothing now will give less gain than establishing a new cost price (at £300,000).

If you intend to hold for a further 40 years instead of 20 then the break even point is not all that far over £500,000.

This represents an annual increase in value of about 1.25%.

The figures are very approximate but it might be worth setting up a spreadsheet to do the actual calculations for different scenarios.

Pumpkinface_2

Horlock wrote: »

I want to sell the house to myself. Is there a legal way of doing this. I know that I would have to pay stamp duty now, but that is considerably less than 18% of the profit (or even a fraction of the 18% of the profit). I don't mind removing my wife's name from the deeds, or adding another name (eg my son who is a minor - don't know if this is legal?)

The property is currently mortgaged and will be remortgaged within a month of today, so now is the opportune time.

Please keep advice on topic. This isn't about evading tax, it is about avoiding it if it isn't necessary. Please no comments about "so I should pay my tax and you don't have to pay yours etc etc". Or suggestions about sell the house and buy another one instead. A simple definative yes or no, but based on fact rather than instinct greatly appriciated.

Thanks in advance.

To stick to the question, no of course you cannot sell to yourself. Selling involves the transfer of goods or services.

Cook_County

You could create another entity such an offshore company owned by an offshore trust.

You'd be hit by SDLT and trust tax charges, legal fees and costs of maintaining the structure. If the value is say £5 million plus this may be worth doing.

Horlock

Pumpkinface wrote: »

To stick to the question, no of course you cannot sell to yourself. Selling involves the transfer of goods or services.

But could I sell my share to my wife? And vice versa?

Pennywise

Horlock wrote: »

But could I sell my share to my wife? And vice versa?

No - your connected parties - husband/wife transfers don't change the original cost/date - your spouse just acquires your original cost/date so it's pointless.

As mentioned above, you're probably worrying about nothing anyway - you have to do the sums to see what the likely scenario will be. When you take into account all the years of exemption as PPR and the lettings relief and your personal annual allowances, there's unlikely to be much, if any, tax payable anyway.

If you're really dead set on doing "something", then the only practical thing you can do is rent it out and sell it and the tipping point when CGT is likely to come into play, say maybe 5 years from moving out and renting it, then sell it and use the proceeds to buy another.

As asked before, if you give us the relevant info, i.e. purchase date and price, current value etc then someone will be able to give you some numbers.

Horlock

Thanks to everyone. I really appriciate the fact that everyone has been helpful.

There is no need for people to spend anymore time on the matter than has already been spent, but as requested:

Purchase price £134000 in december 2004, recent valuation of £174000 october 2009, started to rent the property out in September 2008. Taxable rental income from september to april £148. This years taxable rental income should also be low, as high interest rate charged on new mortgage.

Problem with with Pennywises suggestion of selling in a couple of years, is that the new mortgage we are about to take out has early redemption penalties if we end within 3 years of starting.

Don't worry, I guess we will just have to bite the bullet. I just got a nasty shock when I realised the position we were in - I know it is something that I just have to deal with! My immediate instinct had been that I would pay capital gains on all profit from when we started to rent. This would mean that if property increases in value about 1% per year, we still wouldn't pay anything for a long time, because when we started to rent the property was worth a lot more than it is currently. I then discovered that instead of paying that amount I would need to pay a proportion of all profit it made while we lived there. It's just a bit depressing, but something to get used to. I just wish we had sold a year ago, when my wife said don't be silly we want to keep the property in the UK!

CLAPTON

lets take an example
suppose you keep the house for a further 5 years (say and keep letting it out)
lets suppose its then worth 300,000

so period of ownership =10 years i.e. 120 months
period of residence = 3years 9 months = 45 month
period of letting = 75 months

gross gain is 300,000- 134,000 = 166,000

PPR period is taxfree so 45 + 36 (last three years ) = 81

so PPR exemption is 166,000 x 81 /120 = 112,050 is exempt
also you get letting relief the lesser of 75/120 x 166,000 and 40,000 so the letting relief is 40,000

total reliefs are then 152,050
so net gain is 13,950
so assuming jointly owned you both ahve CGT allowance of 10,100

so taxable gain = zero
tax owed = zero

yes, very depressing, but you will have to get used to it.

Horlock

CLAPTON wrote: »

lets take an example
suppose you keep the house for a further 5 years (say and keep letting it out)
lets suppose its then worth 300,000

so period of ownership =10 years i.e. 120 months
period of residence = 3years 9 months = 45 month
period of letting = 75 months

gross gain is 300,000- 134,000 = 166,000

PPR period is taxfree so 45 + 36 (last three years ) = 81

so PPR exemption is 166,000 x 81 /120 = 112,050 is exempt
also you get letting relief the lesser of 75/120 x 166,000 and 40,000 so the letting relief is 40,000

total reliefs are then 152,050
so net gain is 13,950
so assuming jointly owned you both ahve CGT allowance of 10,100

so taxable gain = zero
tax owed = zero

yes, very depressing, but you will have to get used to it.

:j:j:j Well that's a bit nicer than I thought :j:j:j