Transferring property retrospectively to cut CGT?

Ponsienella

getmore4less wrote: »

My husband and his brother were gifted 1/3 share of their father's home, which he continued to live in rent-free

who/how were these shares gifted was there any life interest in place for the father?

I'm not sure exactly how this was done. My brother-in-law and father-in-law went to a solicitor and organised it. I have the Land Certificate from Land Registry which states under the section entitled 'Proprietorship Register' the date, names and addresses of my Father-in-law, brother-in-law and husband.
It also quotes a restriction of 'No disposition by a sole proprietor of the land (not being a trust corporation) under which capital money arises is to be registered except under an order of the registrar or of the court'. I'm now wondering if this statement will prevent us from selling?

I have the invoice and receipt from the solicitor for the completion of a Deed of gift transferring the property from sole to joint names but not the actual Deed of gift so I don't know exactly what it states in relation to a life interest for my F-I-L. I'll have to see if my B-I-L has this.

Is it important that we do have it if I have all other deeds and this Land Certificate showing who the joint owners are?

getmore4less

you would need to check if it would apply in your case but a life interest in some circumstances can change the IHT and CGT status at DOD.

Although not applicable due to the timescales(and would not have made a big difference anyway much of the gain must be since 2006 and renovations)
For Deed of variation the HMRC check list is a useful initial guide.
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/373615/IOV2.pdf

Spouse transfers are not disposal for CGT this may be the best way to spread the liability if that is allowed for CGT purposes.

Land_Registry

Nothing to post re CGT but a couple of things to note re wider comments re ownership and trust

The legal ownership was transferred to FIL, BIL and H. The beneficial ownership, namely the shares, was presumably part of the Deed of Gift or captured in some other doc such as a Deed of trust. I suspect the former if done pre-2002 and if you need a copy of the Deed of Gift you can apply for one https://www.gov.uk/get-information-about-property-and-land/copies-of-deeds

The restriction you mention was probably entered at the same time as the transfer into 3 names and is used to reflect that there is a trust element involved, namely if two of the legal owners died then the survivor should account for their shares should they sell for example

You can't transfer the legal ownership retrospectively. If the current registered owners transferred it now it would be a current date.

EasySolution

OP should take proper advice from a Tax Accountant.
You need house value at 1997=A 2/3
House value at death=B 1/3
House value Now =C
(C-2/3A)+(C-1/3B)= Gross Gain
Deduct costs of sale
deduct allowable deductions
Deduct annual CGT allowance.

There is no Capital Gains between Spouses so the advantage of transfering some share to you and your sister-in-law is that you would have the use of 4 annual allowances instead of two
4 X £11100=£44,400

sheramber

https://www.taxinsider.co.uk/681-How_to_Correctly_Gift_Property_to_Spouses.html

Making Gifts


When spouses and civil partners transfer assets between them, the transfer must be an outright gift with no conditions attached to it. The transferring spouse or civil partner must not continue to control the asset or derive a benefit from it after the transfer, otherwise it will fall foul of the ‘settlements’ anti-avoidance provisions.


There is, however, nothing to stop the spouse or civil partner who received the gift giving it back to the other spouse or civil partner at a later date, leaving it to them in a will, or making another different gift to the transferor spouse or civil partner at a later date.


It should also be remembered that such transfers could be challenged by HMRC under what is known as Ramsay principle. In this famous tax case it was held by the House of Lords that the courts must look behind the individual steps of a transaction to ascertain the legal nature of the series of transactions as a whole.


The decision in the case was interpreted as meaning that the courts were entitled to disregard steps in a transaction (whether or not achieving a legitimate commercial end) inserted for no commercial purpose other than avoidance of tax liability.


In relation to transfers of property between spouses or civil partners, for Ramsay to apply, the inter-spouse/civil partner transfer would have to form part of a series of transactions designed to produce a tax benefit, or be a sham. For example, this could occur where the transferee spouse or civil partner agrees to return an equivalent sum to the transferor rather than keep the asset as would be the case with an outright gift.


A transfer made only shortly before an eventual sale to a third party could also come under scrutiny by HMRC.

e13

Advice given by sheramber and easy solution looks sound.

The tax insider link also mentions an indexation allowance for pre 08 purchases, which you should look into as this would increase the deemed cost of the property, which would reduce your CGT liability.

For CGT purposes you would then have 4x the following calculation, with CGT payable for each individual at either 18% (lower rate tax payers) or 28% (higher rate) on the taxable amount.

1/4 sale price
/ less allowable selling costs ..........................................(eg auctioneers fees)
/ less allowable expenditure........................................... (eg improvements but NOT repairs)
less deemed purchase price........................................... (N1)
///less indexation allowance............................................(not sure how this works for non-businesses)
/////////// less CGT allowance.......(11,100)......................... (per person in the current tax year)
gives taxable gain: (N2)


N1 This will presumably be 1/4*(value at date of gift*1/3+value at date of death*2/3)

N2 This is taxed at either 18% (up to higher rate band) or 28% in higher and additional rate bands. As such, depending on the various parties' incomes it may be better for husband and wife not to split their shares equally.

I think this is all tax avoidance rather than tax evasion, but really you ought to check with a qualified accountant. Technically HMRC can prosecute for tax avoidance strategies that are purely for tax avoidance purposes, but I don't think it would be likely - it's meant to be used to stop companies and the very rich from concocting extremely elaborate schemes. Doesn't mean someone couldn't have a bad week and decide to apply it to you though - so do have a good google and check around the new "general anti-avoidance rule".

booksurr

e13 wrote: »

The tax insider link also mentions an indexation allowance for pre 08 purchases, which you should look into as this would increase the deemed cost of the property, which would reduce your CGT liability.

indexation allowance was abolished for everyone other than companies and cannot now be claimed at all.

The gain is now the sales price - original/purchase cost. The only "concession" being if the purchase was before 31 march 1982 then the value at 31 march 1982 becomes the start point for the "original" cost

e13

booksurr wrote: »

indexation allowance was abolished for everyone other than companies and cannot now be claimed at all.

The gain is now the sales price - original/purchase cost. The only "concession" being if the purchase was before 31 march 1982 then the value at 31 march 1982 becomes the start point for the "original" cost

Thanks - that is what I had thought, but then it looks like pre 08 transfers allow indexation - but of course in this case the only pre 08 transfer is on death, which makes it an IHT transfer at market value at date of death. The only CGT transfers are post 08, so don't gain the allowance.

Thank you for clarifying!

Ponsienella

getmore4less wrote: »

you would need to check if it would apply in your case but a life interest in some circumstances can change the IHT and CGT status at DOD

Thanks for that. I will check to see if a Life Interest Trust was set up as that may mean no CGT due except from 2006 to date.
The increase in value between 1997 and 2006 is the main increase with there not being a significant increase from 2006 to date.

Ponsienella

EasySolution wrote: »

OP should take proper advice from a Tax Accountant.
You need house value at 1997=A 2/3
House value at death=B 1/3
House value Now =C
(C-2/3A)+(C-1/3B)= Gross Gain
Deduct costs of sale
deduct allowable deductions
Deduct annual CGT allowance.

Thanks for your reply but are you sure your formula for calculating Gross gain is correct?

If I use my estimates of Market values at the appropriate dates (I know I'll have to get a surveyor to provide the official figures but have used figures based on sales in the street at those times):

M.V. of house in June 1997 was c£35,000
M.V. at Date of death 2006 was c£95,000 (Also quoted on probate form)
Current M.V. is c£140,000

If I use your formula it achieves a Gross gain of £225,000 (or am I doing something really wrong to achieve my answer?).

(I've tried to look at it that if I had been gifted 100% of the house in 1997 and then sold it today my CG would only be £105,000 (£140,000 - £35,000) so surely my gain has got to be less than that?)

I had calculated my husband's Gross Gain as £42,500 based on:
1/3(B-A) + 1/2(C-B)

Help!!