CGT and how to avoid paying it

Jeremy535897

I agree that the longer the time gap, the better, but if the sale genuinely may not happen at the time of transfer, and the parties follow through the consequences of the transfer (for example rental income is allocated per ownership, and so are the sale proceeds), I think the Inland Revenue would really struggle, because there are genuine consequences of the transfer. There are no settlement issues on straightforward transfers of assets between husband and wife.

Jeremy535897

It's very kind of you to say so. Having looked at all of these threads in detail, I remain convinced that if a husband owns a property and transfers it into joint ownership before there is any commitment to a sale, and the husband and wife after the transfer receive both rental income and the sale proceeds in line with the joint ownership, HMRC would find it nigh on impossible to mount any sort of argument of tax avoidance. The only transaction that is additional is the declaration of trust, and it is perfectly natural for husband and wife to own assets jointly. Furthermore, that transaction will have actual consequences, namely the monies being paid to the right parties (although if the husband remains the legal owner, he will have to account for the monies to his wife). I reiterate that OP should take proper tax and legal advice, as HMRC is usually successful in cases where the planning carried out is not properly implemented (as is the case in the first thread quoted).

[Deleted User]

I agree. By far the most important words in your latest post are ‘before there is commitment to sale’. In my cases HMRC looked for evidence that the transfer took place before any INTENTION to sell. Obviously this is hard to prove but a decent time frame and the declaration of income on two returns does help build a case. I remember one of my clients being particularly annoyed with me when his solicitor charged him £150 for his work on the transfer. This was critical in the end but he still didn’t thank me.

Jeremy535897

I said originally that it should be done before contracts are exchanged, which is the same thing as commitment when dealing with land. I did also say that I would leave it until shortly before contracts are exchanged to do the transfer, as the tax on the rental income will rise, and on reflection perhaps leaving a month or so longer would be safer. I really think HMRC would be pushing their luck arguing over "intention" to sell though. I have contacted estate agents to get a valuation, but not sold the property concerned. That is no evidence. It really is the most harmless and unobjectionable sort of tax planning, as long as it is done properly.

[Deleted User]

Jeremy535897 said:

I said originally that it should be done before contracts are exchanged, which is the same thing as commitment when dealing with land. I did also say that I would leave it until shortly before contracts are exchanged to do the transfer, as the tax on the rental income will rise, and on reflection perhaps leaving a month or so longer would be safer. I really think HMRC would be pushing their luck arguing over "intention" to sell though. I have contacted estate agents to get a valuation, but not sold the property concerned. That is no evidence. It really is the most harmless and unobjectionable sort of tax planning, as long as it is done properly.

Fair enough. I would have been uncomfortable if I had not mentioned my own previous experiences and the fact that there is some possibility, however low, of a challenge by HMRC and would advise any new client of this. You may be familiar with Fulford-Dobson which was quoted (as if I did not know) on more than one occasion. Furniss v Dawson also reared its ugly head. Good luck.

https://library.croneri.co.uk/cch_uk/btc/1987-btc-158

Jeremy535897

purdyoaten2 said:

Jeremy535897 said:

I said originally that it should be done before contracts are exchanged, which is the same thing as commitment when dealing with land. I did also say that I would leave it until shortly before contracts are exchanged to do the transfer, as the tax on the rental income will rise, and on reflection perhaps leaving a month or so longer would be safer. I really think HMRC would be pushing their luck arguing over "intention" to sell though. I have contacted estate agents to get a valuation, but not sold the property concerned. That is no evidence. It really is the most harmless and unobjectionable sort of tax planning, as long as it is done properly.

Fair enough. I would have been uncomfortable if I had not mentioned my own previous experiences and the fact that there is some possibility, however low, of a challenge by HMRC and would advise any new client of this. You may be familiar with Fulford-Dobson which was quoted (as if I did not know) on more than one occasion. Furniss v Dawson also reared its ugly head. Good luck.

https://library.croneri.co.uk/cch_uk/btc/1987-btc-158

Indeed. Always tricky to rely on a concession for tax planning. Furniss v Dawson was linear rather than circular, and I remember being rather surprised by the decision (in my halcyon days of offshore trusts), but it was rather watered down by later cases.

jimmo

thenap80 said:

Thanks Jeremy...
She is higher rate tax payer so does she still get an allowance for CGT a year? And when you say give her half, is that just having a solicitor put her name on deeds? 

 

Please be careful. Jeremy didn't say give her half. He said .... Give her part.

The complication is that whilst you will qualify for private residence relief (PRR) on whatever proportion you sell to the purchaser, your wife will not.

If you transferred a half share to your wife the effect of the no gain/ no loss transfer between spouses is that she will be regarded as having bought her share of the property on the date of transfer for half of what you paid out when you originally bought it.

Your wife will not have lived in the property during her period of ownership so will not qualify for PRR.

My back of a fag packet calculations suggest that in order to reduce the overall CGT liability you would need to transfer something like an 8.5% share to your wife. By my reckoning if you just sell the property yourself your tax bill will be about £8150.

If you transfer an 8.5% interest to your wife the family tax bill would be about £7250.

So a potential tax saving of £900.

 

In my working days Deeds of Trust were often used to formally define the individuals' respective shares of property held as tenants in common. I never saw them used, on their own, to convert joint tenants to tenants in common or a sole ownership to joint ownership. I don't say it can't be done. Just saying I have never seen it.

I reckon you'll need professional legal and tax advice, so a solicitor and an accountant to set this up for you but transferring an 8.5% share to your wife will, almost certainly, set alarm bells ringing and you will need both your accountant and your solicitor again in the event of an Enquiry from HMRC.

Even if you win I doubt whether you will have any change left out of your tax savings after paying off your professional team.  

Jeremy535897

Declaring you hold a property for yourself and your wife is not difficult from a legal point of view. It's a standard document that should cost  £100 or so. The harder question you raise is working out the main residence exemption. That is where you need the tax advice. My recollection is that the transferee spouse can sometimes inherit the ownership of the transferor spouse, but it is 25 years since I looked at it.

jimmo

Jeremy535897 said:

My recollection is that the transferee spouse can sometimes inherit the ownership of the transferor spouse, but it is 25 years since I looked at it.

Sometimes yes but not in this case.
The couple have to be living together in the subject property at the time of the transfer,
https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg64950

Jeremy535897

Thanks for that. That is why I said it is important to take proper tax advice, but I take your point it might be too dear for the amount at stake. I agree that it would be best to leave the ownership as it is, owned by OP alone.