Most tax efficient way to dispose an asset (BTL property)?

Mrs_Z

We have a BTL property which was purchased on my name only as I'm a non tax payer and my OH was a higher tax rate payer at the time.
We would now like to sell the property and minimise any tax payable. From what I've read, the best way to go about it would as follows:

1. Pay off the outstanding mortgage on the property as this seems to complicate things, so the property will be mortgage free.
2. Transfer a beneficiary ownership to my spouse by a Deed of Trust, held as Tenants in Common

Now, this is where I've got stuck. If the property is held in unequal shares as tenants in common, say 75% and 25% - does this in any way affect the use of individual capital gains allowance? Ie. can both parties claim their respective FULL allowances despite unequal shares or do they need to apply the % to the capital allowance gain as well? I think that they would able to claim the allowance in full regardless, but I have not found an answer to that.

The reason why we're thinking in having it in unequal shares is in case it fails to sell and we'll rent it out again, then we can declare the rental income profit in the % basis to HMRC (provided form 17 has been filled).

Is anyone able to confirm one way or another? Or have I got it wrong completely and confused things?

pphillips

The first question is are you either married or in civil partnership?

You can each have an annual allowance of £12,000 If you both own the property.
The most tax efficient way of holding your respective shares depends on your individual tax circumstances at the time when the property will be disposed of.

Mrs_Z

Hi
Yes we are married. I’m still a non-tax payer and my spouse’s are near the higher rate tax payer limit.

Keep_pedalling

Mrs_Z wrote: »

Hi
Yes we are married. I’m still a non-tax payer and my spouse’s are near the higher rate tax payer limit.

I am not sure how HMRC would view a transfer followed by an immediate sale, but apart from that concern doing this could lead to you paying more tax, as although it would double up the allowance he would be paying the higher CG rate for most of his taxable gain.

pphillips

The transfer between spouses would get holdover relief regardless of whether the sale is immediate or not.. As already stated, you can each have a CGT annual allowance of £12,000 If you both own the property. Your CGT liability will then be added this on top of your taxable income and you will only pay CGT when your income tax personal allowance is used up, the rate is then 18% if you stay within the basic rate of income tax. However, your spouse is a higher rate tax payer so they will pay 28% on their CGT liability.

Sibbers123

If you donate it to charity, you will have no tax to pay

You'll (or engage someone to help) have to do the sums. It might cost you more in legal fees, than it will save you in tax.

Generally, BTL's are not very tax efficient and if your motivation was to save tax, you've made the wrong investment.

pphillips

Sibbers123 wrote: »

If you donate it to charity, you will have no tax to pay

You'll (or engage someone to help) have to do the sums. It might cost you more in legal fees, than it will save you in tax.

Generally, BTL's are not very tax efficient and if your motivation was to save tax, you've made the wrong investment.

If the maths are right, the extra CGT allowance could potentially save them over £2000.

00ec25

changing ownership for a married couple "just" before selling stands a reasonable chance of being overturned by HMRC as having been done for no reason other than tax avoidance.

you have a better chance if the property is still let and he therefore start to pay income tax at higher rate on his stare of the rental profit for a period before you then sell. that way HMRC cannot show that the sale and CGT minimisation was the only objective of the transfer

yes you each get the full 12,500, which is why as TIC you may not necessarily want to have a 1% share if the gain on that 1% is less than the allowance, for example.

the ownership % can be varied as many times as you want given you are married. but would need a new Form 17 and declaration each time - not exactly a great burden to do that

Sibbers123

pphillips wrote: »

If the maths are right, the extra CGT allowance could potentially save them over £2000.

That's why I said 'might'

tebthereb

What’s the capital gain on this property? How much basic rate band do you have left? Will you or wife have other gains in the year? What do you plan to do with the proceeds? Do you have other properties? Why are you selling? Have you ever lived there?

Just a few questions that seem relevant to me...

Speak to your accountant and if you don’t have one and the gain is large... get one.

Mrs_Z

tebthereb wrote: »

What’s the capital gain on this property? How much basic rate band do you have left? Will you or wife have other gains in the year? What do you plan to do with the proceeds? Do you have other properties? Why are you selling? Have you ever lived there?

Just a few questions that seem relevant to me...

Speak to your accountant and if you don’t have one and the gain is large... get one.

In answer to your questions
The gross gain is likely to be around £100 k
Neither of us will have other capital gains to claim against the allowance in the year
Reason for selling: lack of time (& will) to manage. My day job has relocated abroad and I'm commuting weekly so spare time is now very precious indeed.
No special plan for the money as such, but might think of buying a base abroad nr work (rather than renting there), OH could use some to top up pension I guess
No, have never lived in the property
Yes, have other properties; residential and a holiday home abroad