Transfer of assets to spouse - Capital Gains Tax

phred

I own half a second home with my brother.
It was my widowed mother's house that she signed over to us about 12 years ago. (I know, big mistake, but too late now).
She has recently died.
It is now classed as a gift with reservation as she lived there rent free and subject to Capital Gains Tax on its sale.
I estimate is was worth about £60,000 at transfer date and about double now.

I have heard that I can transfer half of my half of the house to my wife and reduce the CGT liability when the property is sold by using her CGT allowance.
Is this correct and if so how do I do it?

ceeforcat

Read this thread - should help!

https://forums.moneysavingexpert.com/discussion/4030447

antrobus

phred wrote: »

...I have heard that I can transfer half of my half of the house to my wife and reduce the CGT liability when the property is sold by using her CGT allowance. Is this correct and if so how do I do it?

That is correct. You get a solicitor to do it.

And see here where it seems somebody has already asked almost the very same question before - see http://www.isis-financial-planners.co.uk/property/property-tax-august-2005.htm

ceeforcat

Antrobus - that article is from 2005. - HMRC, from experience, are no longer adopting a relaxed attitude in this area.

http://www.taxexpert.co.uk/property_...t_property.php

getmore4less

Gift with reservation is to do with IHT.

The CGT liability comes from you not living there, her paying rent would make no difference..

John_Pierpoint

The original poster does not make it clear whether the estate is liable for Inheritance Tax, as well as his personal responsibility for CGT on half the profit since receiving the gift.

phred

The estate will not be liable for Inheritance Tax as the total value of the estate will be about £25,000.
The house is worth about £125,000 and I believe it will be classed as a gift with reservation.
I know this is a taxation mess and mistakes have been made in the past but it's too late now; it's done and I have to get on with it.

John_Pierpoint

phred wrote: »

The estate will not be liable for Inheritance Tax as the total value of the estate will be about £25,000 + £125,000 for
IHT purposes; which will be well within the £325,000 nil rate band.

Does this addition to your posting clarify what you were saying?

[The gift with reservation might well have protected the house from care home fees, had they been large - so not completely daft ?]

phred

John_Pierpoint wrote: »

Does this addition to your posting clarify what you were saying?

[The gift with reservation might well have protected the house from care home fees, had they been large - so not completely daft ?]

Many thanks JP.
You are, of, course, correct about the value of the estate for IHT purposes; not thinking straight.
Indeed, the potential for care home fees was the reason for the transfer. This was done in the belief (perhaps misguided) that the house would be protected.Who knows?
I'm just glad my Mum died instantly at home in her own bed and she didn't have to go into one.

jimmo

Back to your original question.

In my latter years of employment at HMRC I was a Capital Gains specialist, and in circumstances such as yours, used to regularly advise people that, as long as they ensured that the legal transfer of ownership occurred and was documented, before exchange of contracts for the sale, that would be OK and produce the tax efficiency you are looking for.

In many ways I find it ironic that ceeforcat, an accountant urges more caution than I do, but I suppose that is the nature of a forum.

Technically, once contracts have been exchanged, the house has been sold and there is no way that you can give away a half share of something you no longer own.

Now, I stand by what I used to advise “customers” and whilst, if I were in your situation, I would make the transfer at the earliest possible opportunity, as long as the transfer was before exchange of contracts, I would be confident of repelling HMRC if they came sniffing.

I see nothing wrong with a simple transfer of ownership even if the intention is purely to save tax.

Historically, what has been established as unacceptable is a series of transactions with the sole purpose of saving tax but gifting a half share to your wife is hardly a series of transactions is it?

Having said that, I retired in 2006 and my professional knowledge is dated by that.

Ceeforcat’s link in post #4 seems to be from 2006/07 so more or less, the same time so which one of us do you follow?

Having said that your situation is that you have not said whether you currently own the property with your brother as joint tenants or tenants in common.

As a legal layman, I would suggest that if you and your brother are joint tenants it will be very difficult for you to legally gift a half share of your joint tenancy to your wife. If you are tenants in common that would be relatively straightforward

In summary, transferring a half share to your wife definitely has a tax saving potential but it is fraught with danger. I would be very confident of achieving the right result for me but you are in extreme danger of having to spend mega money on professional advice. Such is the nature of Self Assessment.

You pays your money and you takes your chances.

ceeforcat

jimmo wrote: »

Back to your original question.


In many ways I find it ironic that ceeforcat, an accountant urges more caution than I do, but I suppose that is the nature of a forum.

Never an accountant jimmo, ex-Revenue like yourself before turning gamekeeper (think Bel 8)

I see nothing wrong with a simple transfer of ownership even if the intention is purely to save tax.

I sincerely wish that I had been dealing with you a couple of years ago when I had a couple of cases in NI - different inspectors. The second one was particularly distressing as the wife had passed away - made no difference to the terrier like inspector who shall, of course, remain nameless. Unfortunately for this person, the first case had at least prepared me well and there was no adjustments.

Historically, what has been established as unacceptable is a series of transactions with the sole purpose of saving tax but gifting a half share to your wife is hardly a series of transactions is it?

Agreed. My point exactly - I lost!

In summary, transferring a half share to your wife definitely has a tax saving potential but it is fraught with danger. I would be very confident of achieving the right result for me but you are in extreme danger of having to spend mega money on professional advice. Such is the nature of Self Assessment.

You pays your money and you takes your chances.

Could not agree more!