Gifting rented property to spouse

keith_23

Hi guys. I'm after some advice and I can't seem to find the answer on here as my circumstances are slightly different to prevoius posters.

I currently own 2 properties.
I am the sole owner of a property which is let to tennants (has a buy to let mortgage).
My wife and I have a joint residential mortgage on the property that we live in.

As it stands I am in the higher tax rate wheras my wife is not. It is the income that I recieve from the let property which ticks me over into the higher. Is it possible to somehow gift some of the let property to her so that it would bring me beneath it (I'm looking at 50/50)? I'm obviously not trying to be dodgy and commit any sort of crime, but rather save a few $$$ where possible; afterall this is the moneysavingexpert forum!

If its possible for me, is the process fairly smooth? What kind of fees am I looking at? Will I have to use a solicitor? Do I have to ask permission from the mortgage company that provides me the buy to let?

Thanks very much

00ec25

standard stuff

gifts between spouses are on a "no gain no loss" basis. She becomes beneficial (and legal) owner by acquiring the property at your original purchase price. That way when it is finally sold her CGT is based on the gain from that "original purchase" cost.

Was the property previously your main home or did you buy it solely to let? Did the wife ever live in it as her main home before you married?

obviously adding an extra owner to the deeds will require the lender's approval as they really do not like owners who are not party to mortgages on the property. However, as it is a BTL then presumably adding her to the mortgage will not be an issue.

You can DIY the Land Registry forms if you wish, or use a conveyancing solicitor to do it - your choice.

xylophone

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

may be worth a look.

keith_23

Thanks for the quick replies.

I lived in the property for 20+ years.
We both lived in it for a very short period before we relocated due to my work.

[Deleted User]

Without getting into the calculations, let's say that you sell the property 25 years after YOU purchased it.

As it currently stands your gain would be reduced proportionately by the time that the property was your main residence plus the last eighteen months (21.5/25). In addition you would be able to claim lettings relief up to £40000 and your annual exemption then applies.

If you transferred half-share to your wife you would obtain relief on half of the capital gain as above. Your wife would be entitled to no reliefs at all (other than the annual CGT exemption) and would be liable for Capital Gains on her half share from the date that YOU purchased it.

Food for thought!

kidmugsy

[quote=[Deleted User];73053314]Without getting into the calculations, let's say that you sell the property 25 years after YOU purchased it.

As it currently stands your gain would be reduced proportionately by the time that the property was your main residence plus the last eighteen months (21.5/25). In addition you would be able to claim lettings relief up to £40000 and your annual exemption then applies.

If you transferred half-share to your wife you would obtain relief on half of the capital gain as above. Your wife would be entitled to no reliefs at all (other than the annual CGT exemption) and would be liable for Capital Gains on her half share from the date that YOU purchased it. [/QUOTE]

Interesting. So two ideas occur:

(i) Sell the property so that max CGT advantage accrues, gift virtually all the capital to his wife, and buy a new BTL owned 99% wife 1% OP. Or instead buy a holiday-rental house so that the wife's share of the net rent counts as earnings and can therefore justify higher pension contributions for her.

(ii) Or soldier on and avoid HRT by making bigger pension contributions.

I'd find (i) tempting if I thought I might never want to live in that house again. I might want a new BTL nearer to my own house for ease of management. Or a BTL that I might eventually want to use as my retirement house. Or that I might eventually want to use as a pied-à-terre in London, or Paris, or as a house for my children eventually to live in at university, or ..... Or even buy something else altogether e.g. a bigger, better owner-occupied house. Or a debenture for Twickenham or Murrayfield, a small island in the Hebrides, a diversified portfolio of shares, a pile of gold sovereigns, ......

00ec25

ooops , I forgot that the wife can't inherit a claim to PRR if she was not living there whilst an owner, ie the transfer comes after they moved out

https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64950

but, there is absolutely nothing stopping the wife transferring it back to the husband when they are nearing the point of sale. Note emphasis on nearing, not at.
Reverting him to sole ownership could be seen by HMRC as being done purely for tax reasons, and so the general anti avoidance legislation would allow HMRC to set aside that transfer. However, that risk can be much reduced/eliminated if the transfer back to the husband is done well before the point the property goes on the market for sale and better yet whilst it is still let. Thus he gets to claim PRR on the whole property, but he would then of course be back to being solely liable for the rental income profit as evidence that the transfer was not done purely for CGT purposes.

[Deleted User]

00ec25 wrote: »

but, there is absolutely nothing stopping the wife transferring it back to the husband when they are nearing the point of sale. Note emphasis on nearing, not at.
Reverting him to sole ownership could be seen by HMRC as being done purely for tax reasons, and so the general anti avoidance legislation would allow HMRC to set aside that transfer. However, that risk can be much reduced/eliminated if the transfer back to the husband is done well before the point the property goes on the market for sale and better yet whilst it is still let. Thus he gets to claim PRR on the whole property, but he would then of course be back to being solely liable for the rental income profit as evidence that the transfer was not done purely for CGT purposes.

So glad that you mentioned that. A while back I (under a different name) I stressed the same pitfalls with transferring property shortly before or at the point of sale. HMRC had challenged the transfer into joint names made by one of my clients eighteen months before sale. Thankfully I had insisted upon formal valuations etc and the case was closed. It would be fair to say that I was not universally supported on here!

00ec25

[quote=[Deleted User];73054111]So glad that you mentioned that. A while back I (under a different name) I stressed the same pitfalls with transferring property shortly before or at the point of sale. HMRC had challenged the transfer into joint names made by one of my clients eighteen months before sale. Thankfully I had insisted upon formal valuations etc and the case was closed. It would be fair to say that I was not universally supported on here![/QUOTE]LOL, you may have forgotten something, and i certainly did forget this time, but i well remember that "discussion" (and the opposition it attracted).

SuperHan

You could give the wife just 1% of the capital of the property. This will get round most of the CGT points as her share will be minimal.

Income is automatically split 50:50 for spouses on a property unless an election is made to split in line with actual contributions, so you will get around the income tax points that way too.

I think there is a legal way of doing the transfer too so that you don't actually have to go through conveyancing and updating land registry (some sort of deed - you'd need a lawyer to advise further on this).