Transfer ownership to lock in capital gain

Adamski2011

Hi,

My wife and I have lived in our current flat for 7 years with the property being held in my name only. We are considering moving to a new house and converting our existing property into a buy-to-let.

As with many London properties the value has risen considerably over the past year. I don't believe this rise to be sustainable and so would like to "lock in" the capital gain until this point, thus ensuring it remains tax-free. Is it possible to do this by giving the house to my wife and then setting up the BTL mortgage in her name?

If not, then can anyone suggest any other (legal!) mechanism to help minimise the tax we'll have to pay when eventually disposing of the flat?

Also note that my wife doesn't currently have an income - Would this be a concern when arranging the mortgage or is it solely based on expected rental yield?

My concern is if we keep the property in my name and then sell in say 5-6 years the London market may have stagnated at around the current level and hence some of the current (big) gain will fall into a taxable period (albeit a small one) because the CGT calculation assumes linear growth.

Any views / opinions appreciated.

Regards,
Adam.

da_rule

The fact you have lived in the property helps as HMRC gives relief for former principle residences. Your best bet might be to transfer 50% of the property to your wife as that way when you do sell it there will be two yearly allowances (yours and hers) to deduct rather than one.

00ec25

as you are married then if you transfer it to her any gifts between spouses are on a no gain/no loss basis ie she inherits it at your original cost so there is no way to "lock in" the gain at this point in time

Instead all you are doing is transferring the CGT liability from you to her. If she has no income then the total amount of CGT payable will of course be lower in absolute terms but you are not "crystallising the gain" by making an inter spouse transfer

assuming you got married before you both started to live in the property then she will inherit a full claim for private residence relief for the time she has lived in it so would have that exemption , she (and incidentally so can you at this time) could also claim letting relief and will, of course, have her CGT personal allowance.

without seeing some numbers there are many ways to advise you, not the least being you should consider switching to Tenants in Common with unequal shares which favour her tax free status for income tax purposes whilst retaining access to your CGT personal allowance and claim to letting relief. Such TIC ownership would (depending on your numbers) minimise income tax exposure whilst also giving you a combined CGT relief of a maximum of £102,000