Splitting & Gifting A Property

da_rule

trickydicky802 wrote: »

If I did then it wasn't deliberate, just something I missed through not being fluent in CGT issues. If I was then I wouldn't be here.

Anyway, I'm now thinking that there are no CGT issues arising because the entire property is one single title so all of it must be my main residence.
https://forums.moneysavingexpert.com/discussion/6037731

However, I now understand that if I were to split it into two titles then this could be problematic for my son if he inherits the property as two legally separate properties, because then he wouldn't be able to occupy both of them as his main residence, giving rise to potential CGT liabilities in the future . . . . unless, of course, he was to re-join them into one single title again! (no, let's not go there! )

The Land Registry is a complete red herring in this situation. I know, for example, that my local council has a title which covers an entire estate of houses. There is no way that you could argue that this all amounted to one property.

It’s going to be a very objective test, based on the facts, so:
1) It has it’s own council tax banding;
2) It seemingly has its own utility supplies/phone line etc;
3) Whilst there is an interconnecting door, as you say, this can be locked from either side so you could essentially be denied entry;
4) The property is occupied so therefore you could not really use it as your own (you couldn’t just decide to sleep in the cottage bedroom one night etc).

My view would therefore be that it is a disposal for the purposes of CGT.

However you may not have any tax to pay. You don’t mention (or if you do I’ve missed it and I apologise) whether you’re married and own the property jointly with your spouse? If so you would be jointly gifting it and therefore the gain would have to be more than £24,000 (2 x £12,000 nil rate band) before any tax is payable.

From the sale price (which as you are connected persons is the open market value) you can deduct the price you paid to purchase that part of the property. You can also deduct that part of the properties share of the purchase costs (stamp duty, legal fees etc) and the costs of any improvement (but not maintenance) works. When all of this and your annual allowance has been deducted, you may not have any CGT to pay.

Also, depending on the size of your estate, this may not be the most tax effective way to do things. If the assets you own are worth less than £475,000 (being the IHT nil rate band of £325,000 plus the current £150,000 residence nil rate band, which increase to £175,000 next year and then rises with inflation) then you won’t pay any IHT. If you are married and the first spouse that dies leaves their entire estate to the other then when the surviving spouse dies the estate would have to be worth more than £950,000 before any IHT is payable (nil rate band of £650,000 following application of spousal exemption and transfer and property nil rate band of £300,000 following spousal exemption and transfer).

trickydicky802

Just to correct one point, the annexe does have utilities but they are all shared with the main house and they are all in my (or my wife's) name, ie there is only a single water, gas and electricity meter for the entire property.

I find it hard to believe that the single legal title is a 'red herring'.

If you are correct about two council taxes meaning it must be two properties, wouldn't that mean that two lots of SDLT would be payable on purchase? (there weren't). But how would each part be individually valued given that it is legally impossible to individually sell either property (without splitting the title)? And even if two properties were aggregated into a single title (like your council estate example), wouldn't each separate dwelling be identified on the title? (they're not)?

Also, if they were two legally separate properties, how could the local council grant a council tax exemption for 'dependent parents' living in a self-contained annexe? A legally separate dwelling surely cannot be an annexe of another property, by definition.
http://www.council-tax.com/dependantrelativeexemptions.html