Capital gains tax and transferring property ownership

how_do_i?

I own a property (no remaining mortgage) purchased in 1984 for 15.5K in my name only.

Current value £105k

Sole residence for 20 years and wholly rented or empty for last 17 years (approximate numbers months will be tally accurately and the final 9 months added when calculating accurately) which gives a relief of 0.54 (20/37)

So my gain is 105K - 15.5K x 0.54 = £48.33K  (rough figures things like purchase and sale costs and accurate figures to be used)

To take advantage of my wife's allowance we were going to gift 50% of property to her and sell which reduces my gain to a more acceptable level closer to my allowance (leaving a small tax bill (<£500).

Two questions:

Can we sell within the same tax year as the ownership is changed? 

As she will be making zero gain on her 50% is it possible/allowable to gift her 100% of the property and she then sells it as soon as sale completes (we have a cash  buyer lined up).  She would then make 0% gain and I will not have a capital gains tax bill liability?

Any help appreciated.

Keep_pedalling

Transferring 100% would pass the entire CG to your wife as she is deemed to have obtained it at the cost of your original purchase. If she never lived in the property then I don’t think she can claim residential relief on what ever share you give her.

As you already appear to have a buyer lined up HMRC may see this as a gift of the proceeds rather than the property itself.

[Deleted User]

Keep_pedalling said:

Transferring 100% would pass the entire CG to your wife as she is deemed to have obtained it at the cost of your original purchase. If she never lived in the property then I don’t think she can claim residential relief on what ever share you give her.

As you already appear to have a buyer lined up HMRC may see this as a gift of the proceeds rather than the property itself.

Agree with all of that. The time to make any transfer would have been well in advance of any intention to sell but, as you say, no Private residence relief even if that had been the case.

how_do_i?

Keep_pedalling said:

Transferring 100% would pass the entire CG to your wife as she is deemed to have obtained it at the cost of your original purchase. If she never lived in the property then I don’t think she can claim residential relief on what ever share you give her.

As you already appear to have a buyer lined up HMRC may see this as a gift of the proceeds rather than the property itself.

Thanks for your reply.

Using the .gov capital gains calculator.  It does not indicate this and shows she would have 0 gain.  Seems to good to be true - thus the question.

It does not mention a time period so I am a little confused.

how_do_i?

[Deleted User] said:

Keep_pedalling said:

Transferring 100% would pass the entire CG to your wife as she is deemed to have obtained it at the cost of your original purchase. If she never lived in the property then I don’t think she can claim residential relief on what ever share you give her.

As you already appear to have a buyer lined up HMRC may see this as a gift of the proceeds rather than the property itself.

Agree with all of that. The time to make any transfer would have been well in advance of any intention to sell but, as you say, no Private residence relief even if that had been the case.

If I gift her 100% and transferred ownership to her I will have had no personal gain.  Then she sells it for 105K she will not have gained from the value at the time of the gift.

There is no indication of "well in advance" that i could find in the CGT guidelines.  Do you know of a time frame or cn you point me in the direction.

Any further clarification/information would be much appreciated as I am very confused.  Not looking to manipulate anything but if there is scope to protect me from capital gains within the law I don't want to miss out on doing it if it is legit!

how_do_i?

Just found this which clarifies a couple of things.... much better than the .gov guidelines so posting it as others may find it useful.

"2. Sharing and gifting assets

The transfer or gifting of assets between spouses or civil partners is exempt from CGT. There are benefits of doing this with your buy-to-let flat or shares:

• You can each use your CGT tax-free allowances when you sell, for example, if you own the flat together you could offset £24,600 against the £100,000 profit
• If you are both higher-rate taxpayers, your total tax would drop to £21,112 but if your partner was be a basic-rate taxpayer, they will pay tax on their share of the profit at 18%

This is the key sentence which I couldn't find an answer too.  The .gov calculator does not make this clear!!

NOTE: your partner’s gain is worked out on the profit since you bought the property, not the value when it was transferred to them."

[Deleted User]

The calculator, unfortunately, does not interpret rules, only figures. 

If you transfer the property to your wife it will be at a no gain/ no loss. Your wife will be deemed to have purchased the property at your cost when you purchased it. As mentioned before, she has never lived in it as her main residence and would be entitled to no principal private residence relief. The chargeable gain is likely to be much larger.

On the transfer itself - I have argued many times that HMRC can challenge (and I have experienced it) the transfer where there is clear evidence that the sole purpose of so doing is for tax reduction reasons I.e. no business reason and,perhaps, the manipulation to which you refer. In that regard, the longer before sale that this transfer takes place, the better. Having a buyer in place seems to add considerable weight to any HMRC challenge.

There are those who would intimate that HMRC would fail in their challenge but, given your particular circumstances where the property is close to sale, that risk is elevated.

Regardless, the loss of your PPR as a result of the transfer, 50% or 100%, seems to be the overriding factor.

Have a read of this in the section under ‘making gifts’ and the Ramsay principle.

https://www.taxinsider.co.uk/how-to-correctly-gift-property-to-spouses-ta

how_do_i?

Right this is sooooo over complicated!!!

Just been back on to .gov site to do the calculator with the following scenario:

100% gifted to wife - Result -No tax to pay

Calculated for wife answering the questions:

Received from spouse as gift valued at £105K
Sold for £105K
No tax to pay.

No mention of original price I paid.  No mention of when gift occurred.  Nothing.

Help!!!!!

[Deleted User]

how_do_i? said:

Just found this which clarifies a couple of things.... much better than the .gov guidelines so posting it as others may find it useful.

"2. Sharing and gifting assets

The transfer or gifting of assets between spouses or civil partners is exempt from CGT. There are benefits of doing this with your buy-to-let flat or shares:

• You can each use your CGT tax-free allowances when you sell, for example, if you own the flat together you could offset £24,600 against the £100,000 profit
• If you are both higher-rate taxpayers, your total tax would drop to £21,112 but if your partner was be a basic-rate taxpayer, they will pay tax on their share of the profit at 18%

This is the key sentence which I couldn't find an answer too.  The .gov calculator does not make this clear!!

NOTE: your partner’s gain is worked out on the profit since you bought the property, not the value when it was transferred to them."

Our posts have crossed!

You have used the a similar article to which I linked but didn’t scroll down far enough. The last paragraph that you did quote confirms the no gain/ no loss result.

[Deleted User]

how_do_i? said:

Right this is sooooo over complicated!!!

Just been back on to .gov site to do the calculator with the following scenario:

100% gifted to wife - Result -No tax to pay

Calculated for wife answering the questions:

Received from spouse as gift valued at £105K
Sold for £105K
No tax to pay.

No mention of original price I paid.  No mention of when gift occurred.  Nothing.

Help!!!!!

No. Transferring it to your wife has no effect on you. Your wife now owns the property. Her purchase cost is now what YOU paid for it NOT 150k! BUT she is entitled to NO relief for it being her private residence.

It is simply a calculator. No reliefs, legislation, time apportionment rules are built in. 

[Deleted User]

I sense some doubt that you are taking my word for it. Accordingly, please see these attached gov.U.K. Guidance on spousal 

https://www.gov.uk/capital-gains-tax/gifts