CGT and Assignment & Declaration of Trusts

ljayljay

Following on from an earlier post I was given some clear guidance on CGT on disposal of property and land. Since then, things have moved on and I have a further query that I would like some clarification on.

Earlier this year I received a capital gain in the part share of a property sale that was below the £12,300 personal allowance limit and also below other thresholds for reporting. Subsequently I received a further capital gain from the sale of some land that combined with the property sale has exceeded my personal allowance. After checking the website and ringing HMRC I am clear that I need to complete a self-assessment to declare for the 21/22 TY.

Going forward I have a further share in a number of plots of land that I will be looking to sale in the coming years. Although registered in my name I consider that once sold the proceeds to be jointly owned by myself and wife. This made me think that it would make sense to also utilise her CGT personal allowance. I have since been advised that rather than change all of the land registry documents I can in effect give my wife 50% of my share by arranging a solicitor to draw up an Assignment & Declaration of Trust agreement.

My main question therefore is will this then mean that in future myself and wife are automatically entitled to divide any capital gain by 50% and then apply our individual personal allowance? My confusion is that although we may have a legal document showing joint ownership this will not show on the land registry documents. Guess I am just seeking confirmation that this meets HMRC rules.

Jeremy535897

Capital gains tax liabilities fall on the beneficial owners rather than the legal owners in this case. You may be asked by HMRC to produce evidence of the beneficial joint ownership if they enquire into the returns. You should do the declaration of trust as far in advance of a sale as possible, ideally well before marketing the property, and certainly well before entering into any sort of commitment to sell it. Assuming these are bare plots of land, you also need to be aware of the following issues:

• are you sure you are not actually trading in land, or subject to the transactions in land legislation that treats certain profits on land as income?
• if there is a mortgage on a transferred plot, the mortgage transferred (probably 50% in this case) is treated as consideration for stamp duty purposes
• any income such as rent receivable will also be assessable 50% you and 50% your wife. If you choose to transfer a different figure to 50% of the beneficial interest, there are further complications

ljayljay

Thanks for the detailed explanation. None of the provisos you mention apply in my case.
This could prove useful as one plot in particular that I inherited several years ago has planning potential so could make sense to utilise both of our allowances. I will look to sort out in the near future & think it will be at least a year or two away from being marketed for sale.

Jeremy535897

If it has planning potential, and could sell for a large sum, take proper tax advice before doing anything that would add to its value.

ljayljay

Ok that is certainly worth thinking about. However, having a quick web search I can see there are a number of areas to consider in respect of further minimising tax with reliefs i.e agriculture, pension contributions, future IHT liabilities etc but can't see anything covering my situation.

Although relative I don't think we will be talking about a large sum. Best case scenario would be a plot valued at £10k maybe if lucky fetching around £100k. This will then be split between three leaving me with an approximate potential gain of £30k. So using both yearly allowances could cover the majority of the gain & I would be happy with that.

Jeremy535897

The planning options are varied and complex, and may not be appropriate for a shared gain of this magnitude. What you need to do, though, is avoid accidentally structuring things to turn the gain into income, which is rather easier to do when development value is in point.

ljayljay

Jeremy535897 said:

The planning options are varied and complex, and may not be appropriate for a shared gain of this magnitude. What you need to do, though, is avoid accidentally structuring things to turn the gain into income, which is rather easier to do when development value is in point.

Thanks again for your input.

I can see it could in some circumstances be rather more complicated, although I am unsure how I would fit into that category. However, it may help if I give a bit more detail as follows.

Myself & siblings inherited several plots of land from 2 relatives dating back to 2014. I recently engaged an estate/land agent to provide a latest market value & sold one of these plots over probate value. This sale has created a small CGT liability for this TY. The agent has mentioned that one or two plots stand a fair chance of obtaining pre or full planning & if so, could obviously be marketed for more & therefore greater CGT liability. So, the intention would be to investigate planning potential & if successful market with planning in place. We have no intention of getting involved in any developmental or building works.

We are either retired or in full time work & not looking for an income or to create a land development business. Our only strategy is to dispose of the land that we have been fortunate to inherit for the best market price whilst remaining tax efficient. With this in mind we were thinking that it would be sensible to stagger the sales over several years in order to utilise our yearly capital gains allowance. We are in no urgent need to sale the land quickly but neither do we want to keep it.

With the above scenario is there any specific issues that we need to bear in mind in respect of taxation?

Jeremy535897

It is helpful that your acquisition of the plots was by inheritance, so clearly they were not acquired as part of a trade. Merely selling off plots every so often is unlikely to be a problem, but there is some very complex legislation in part 9A Income Tax Act 2007 that may catch certain scenarios where development value is concerned, and replace capital gains tax with an income tax charge. It may well be the case that simply applying for and obtaining planning permission before selling a plot outright, with no share in any future development profit, may still be a capital gains tax matter, but it would be advisable to take specialist tax advice.