Calculating capital gains tax

swindiff

Hi Booksur

Was going to try and PM you but cant, so am posting on here hoping that you can advise again as you were most helpful on this thread.

We are now at the stage where we are going to be putting my partners house on the market and moving into the house that we currently have let out. The money from my partners house we will use to either reduce the mortgage on the property that we will reside in or put into high interest current/savings accounts. To maximise return would mean putting in accounts in both our names and joint accounts.

My partner is understandably a little nervous that our only property will be solely in my name and that money from her property will go into it, and into accounts that are in both our names. But we also don't want to put ourselves in a situation where we would be liable to a big CGT bill further down the road.

I'm going to have to give a bit more background here so you are fully aware of the situation, bear with me.

My partners property was in both her and her ex-husbands name, he had run up bad debt and there was a charging order on the property as well as the mortgage and a secured loan. We decided that we wanted to buy him out of the property, we also decided at the same time that we would buy another property as we wanted to move in the future when her son had finished school (that is now this June). We could see that prices were on the rise so decided to buy when we could and let it out for a couple of years until we were ready to move.

I used £25k of my savings to buy him out of the property, we then remortgaged my partners property. We borrowed enough against her property to pay off all the debt against it, but also enough to put a £40k deposit down on the new property.

Because of the debt issues, this mortgage was not at a particularly good rate, but we managed to borrow with both of our names on the mortgage and deeds, but with the allocation of the property ownership 100% to 0% in my partners favour.

We then bought the new property, but because of my partners poor credit history we bought it just in my name to get a favourable interest rate on the mortgage. My partner effectively gifted me £40k from the remortgage of her property for the deposit.

I have been advised on this thread to not transfer any ownership to my partner until we are married because this could mean some liability for CGT further down the line. But what if the money we raise by selling my partners property is used to "buy" her half share in the new property? The current equity in the new property is about £120k, and we should realise £60k-70k from the sale of my partners property.

So my thinking is this, sell my partners property, use the funds from this to "buy" her 50% share in the new property. I then use this money from her to put into savings/current accounts in both our names. We then own half the property each and have half the money each, but by doing it this way she has not been gifted half the property, she has paid £60k for it so there should be no capital gains.

Hopefully this makes sense, its a bit of a ramble lol

booksurr

swindiff wrote: »

but also enough to put a £40k deposit down on the new property.

Because of the debt issues, this mortgage was not at a particularly good rate, but we managed to borrow with both of our names on the mortgage and deeds, but with the allocation of the property ownership 100% to 0% in my partners favour.

don't understand!

the new property is legally owned by both of you as both are on the deeds but the "allocation" is 100% in your name. Do you mean you have a declaration of trust giving you 100% of the beneficial ownership leaving her with 0% of the beneficial ownership but a joint(?) share of the legal ownership?

if she gives "you" 50k from the sale of her house then that has no impact at all on CGT in respect of the new house since you are both owners of it and both live in it as your respective CGT exempt main residence. There is no tax on "gifts" in such circumstances as in reality all she is doing is paying off 50k of the (joint) mortgage liability. It has no impact on either the legal or beneficial ownership unless you both choose to alter the latter, and given your intended marriage there would be no point in doing so now.

I may have misunderstood the quote above but if she is concerned that she is going into a marriage without a share of the equity in the property, and therefore could lose if you divorce "quickly", then get the solicitor to do a declaration of trust for whatever sum / terms you both agree. If you divorce later then the start point is always 50/50 anyway and who paid what into the marriage is a lesser consideration among other factors. This may be an erroneous tangent but this is worth a read: http://www.jmw.co.uk/services-for-you/family-law/articles/age-and-length-of-marriage-divorce/

if she doesn't pay off mortgage but "you" decide to save/invest the money instead in joint names then that is simply a tax free gift of cash from her to you. I fail to understand how that "buys" her a share of the property since she already owns it

swindiff

No, sorry perhaps I didn't make it very clear.

Property A was owned by my wife and her ex husband.

I bought him out by using 25k of savings.

My partner and I remortgaged property A to release 40k of equity for a deposit for property B

Property A is now in both our names on the mortgage and deed but my partner has 100% of the value in this property.

We bought property B just in my name because my partners poor credit history would have had a negative impact on our mortgage application. So as it stands I am the sole owner of property B at the moment.

Hope this makes sense

Cheers

swindiff

We want to sell property A and move into property B but we want to be equal owners of property B. I was warned not to "gift" 50% of property B to my partner before marriage due to possible CGT implications. But if the proceeds from the sale of property A are used to "buy" a 50% share in property B then does this get around this issue.
In reality the money stays in our combined accounts.

booksurr

swindiff wrote: »

We want to sell property A and move into property B but we want to be equal owners of property B. I was warned not to "gift" 50% of property B to my partner before marriage due to possible CGT implications. But if the proceeds from the sale of property A are used to "buy" a 50% share in property B then does this get around this issue.
In reality the money stays in our combined accounts.

That's better!

Sadly the answer is I don't know. Since the money is going to be in the bank anyway why not simply wait until you are married then you can easily gift her a share of property b anyway and thus there is no need to worry about movement of funds to represent the "purchase" of a share by her to start with

swindiff

The issue is with her security. We will use some of the money from the proceeds of the sale of house A to get married, maybe pay off some of the mortgage of house B, new kitchen and furnishings for house B. All of this will diminish her overall share of our overall joint assett.
If for example we split up before we were married (extremely unlikely but for her peace of mind). I own the house and she has paid for everything from the proceed of the sale from her house. This is why we would like all our assets to be a 50/50 split as soon as possible.