Jack and Jill and Splitting Assets

JanJi

Hello.

Jack and Jill are married and own two houses jointly. They want to split their assets, and this is their plan.

Step 1 – Sell House One using their annual CGT allowance and split the profit.

Step 2 – Jill transfers the Full ownership of House Two to Jack.

Step 3 – Jack re-mortgages House Two for £ XXX,XXX. 

Step 4 – Jack transfers the re-mortgage amount for House Two, plus his profit from the sale of House One to a joint savings account.

Step 5 – Jill transfers £ XXX,XXX out of the joint savings account to her personal account and buys House Three in her own name.

Step 6 – Jack lives in House Two and Jill lives in House Three.

Questions, 

1. Would this be achievable and if so, what are the tax implications?

2. Would Jill have to pay CGT on the transfer from the joint account to her personal one?

3. Would Jill avoid the second home stamp duty on House Three?

4. Would Jack have to pay any Stamp Duty on the transfer of ownership?

5. Would Jack end up paying more capital gains tax in the future when he eventually sells House Two?

Regards

J&J

firebubble

Definitely one for a lawyer - the complexity of the steps suggest the aim is tax avoidance.

TripleH

Are they splitting up (divorce)?

Where are the houses located, ie are they in the same town (exact location not required)

Have the additional costs such as council tax Bern factored in?

This answer could vary depending on point 1.

JanJi

Hello TripleH

Divorce, no. Separating, Yes. They will be living in separate houses.

Not the same town.

No idea what tax Bern is - an evening with google required!



Hello firebubble

Tax avoidance? No hence the question on here. Minimising  tax payments where legally possible, definitely!


Thanks for your replies.

gettingtheresometime

I think bern was perhaps meant to be been.

Why would Jack need to transfer the money to a joint account? Couldn't he (or his solicitor) simply transfer the money to Jill directly?

Is House One their primary residence?

JanJi

Neither House One or House Two are primary residences. Both are currently let to third parties. 

Jack and Jill currently rent a house together. 

gettingtheresometime

JanJi said:

Neither House One or House Two are primary residences. Both are currently let to third parties. 

Jack and Jill currently rent a house together. 

I'm no expert but couldn't their biggest problem be removing the tenants so that the houses can be sold or Jack move in?

Thrugelmir

Have they run this past their respective solicitors. Until they divorce and a financial consent order is drafted. Either can still claim a share of the others assets. 

AdrianC

Until such time as they do divorce, it's irrelevant. They're still joint marital assets.

As and when they do divorce, they can come to a formal arrangement - hopefully by mutual agreement.

The only thing here that might cause an issue is step 5 - the SDLT on house 3. If it's being viewed as a permanent separation, then there may be a situation where Jill is regarded as only owning one property, so the +3% won't apply. @SDLT_Geek can give more details.

SDLT_Geek

JanJi said:

Hello.

Jack and Jill are married and own two houses jointly. They want to split their assets, and this is their plan.

Step 1 – Sell House One using their annual CGT allowance and split the profit.

Step 2 – Jill transfers the Full ownership of House Two to Jack.

Step 3 – Jack re-mortgages House Two for £ XXX,XXX. 

Step 4 – Jack transfers the re-mortgage amount for House Two, plus his profit from the sale of House One to a joint savings account.

Step 5 – Jill transfers £ XXX,XXX out of the joint savings account to her personal account and buys House Three in her own name.

Step 6 – Jack lives in House Two and Jill lives in House Three.

Questions, 

1. Would this be achievable and if so, what are the tax implications?

2. Would Jill have to pay CGT on the transfer from the joint account to her personal one?

3. Would Jill avoid the second home stamp duty on House Three?

4. Would Jack have to pay any Stamp Duty on the transfer of ownership?

5. Would Jack end up paying more capital gains tax in the future when he eventually sells House Two?

Regards

J&J

Q3. I would expect Jill to escape the 3% surcharge to SDLT on the basis that at the time she completes the purchase:
(a) they are separated in circumstances likely to be permanent and
(b) she has no other property interests.

Q4.  I would expect Jack to have to pay SDLT on the sums paid to Jill (even though by a circuitous route).

JanJi

Thank you all for your thoughts and advice. A few follow up questions / thoughts for any tax experts out there.

They are not getting divorced. Many reasons could be behind the separation. Work, leisure, children to name but a few.

Jack would not “pay” Jill anything. She would transfer £XXX,XXX out of a joint account into her own account. Jack wouldn’t transfer anything directly to Jill.

1. I understand that Jill wouldn’t be liable for 2nd home tax, but I don’t understand why Jack would have to pay Stamp on a re-mortgage?

2. So, Jill wouldn’t be liable for any CGT because she transferred money out of a joint savings account?

3. If Jill does have to pay CGT, would Jack have to pay CGT on the profits from the original purchase of House Two when sold or from the re-mortgage value?

4. And finally, if Jill doesn’t pay any CGT, would she be liable for any when House Two is eventually sold, even though she would not be on the title deeds?

Regards

J&J