Capital gains tax and transferring property ownership

[Deleted User]

how_do_i? said:

[Deleted User] said:

Jeremy535897 said:

Sorry to make life even more confusing, but two previous posters appear to have overlooked the amendment to section 222(7) TCGA 1992 by section 24(2)(b)(ii) FA 2020, which removes the issue of losing main residence relief for transfers of properties that were, but are not currently, the main residence of the transferor.

The basic answer is that if you give half the property to your wife, sufficiently in advance of a disposal to avoid the "Ramsay" principle, the overall gain is the same as if you just kept and sold it yourself, but divided equally between you (so potentially using two annual exemptions and perhaps reducing the tax rate).

If tax is payable the gain needs to be reported and the tax paid within 60 days of completion:
https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

I think you may have calculated the gain on the exempt period in your OP, rather than the chargeable period.

Yes Jeremy - you are clearly more up to date that I - complete news to me. 

It does appear that the op is simply going to ignore the pitfalls of the Ramsay principle and take his chances.

No intention to avoid pitfalls.  Posting as trying to do it correctly.  Without breaking any laws just taking advantage of anything that is put there to take advantage of and do it correctly!

Read Jeremy’s post in full. Whether you take heed of the Ramsay principle which exists to prevent what you appear to wish to do will be a matter of fact in the end. 

how_do_i?

Jeremy535897 said:

Sorry to make life even more confusing, but two previous posters appear to have overlooked the amendment to section 222(7) TCGA 1992 by section 24(2)(b)(ii) FA 2020, which removes the issue of losing main residence relief for transfers of properties that were, but are not currently, the main residence of the transferor.

The basic answer is that if you give half the property to your wife, sufficiently in advance of a disposal to avoid the "Ramsay" principle, the overall gain is the same as if you just kept and sold it yourself, but divided equally between you (so potentially using two annual exemptions and perhaps reducing the tax rate).

If tax is payable the gain needs to be reported and the tax paid within 60 days of completion:
https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

I think you may have calculated the gain on the exempt period in your OP, rather than the chargeable period.

Thanks Jeremey, so based on my rough calculations above (with the decimal points in the correct place!  I am better off just leaving it in my name to take advantage of 100% of the PRR as I would lose this if I transferred/gifted 50% to my wife as the sale would be too close to the transfer ("Ramsay" principle?).  What is considered sufficiently in advance?.  Very vague.

Is this correct or have I misunderstood?

Thanks for obs re exempt period calculation. 20/37?  resident for 20 years let/empty for 17 = 0.54

Still begs the question why the .gov calculator does not flag any of this up.  Kind of defeats its purpose and encourage incorrect filing.!! 

how_do_i?

so my reduction for PRR would be 0.46 ie i am taxable for 46% - 17/37 years (rented/vacant) of gain not 54% (20/37)

how_do_i?

purdyoaten2 said:

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

Not at all.  Simply trying to understand something that is very complex to me and do the right thing.  I got the impression you thought I was trying to do something dodgy which is what I am trying to avoid!

All this has been very helpful and I really appreciate the responses.

Jeremy535897

You misunderstand the impact of the Ramsay ruling. Either the transaction is one where you and your wife each sell half the property (no Ramsay), or it is one where you sell all the property and are obliged to give your wife half the proceeds (in other words the gift to your wife is ignored in calculating the gain and the tax due).

Using your 0.54 figure as the exempt part, the gross gain is £105,000 - £15,500 = £89,500, less main residence relief £48,330 leaves £41,170 taxable subject to annual exemptions. If you give half to your wife before sale, the gain is still £41,170, but you are each treated as making a gain of £20,585. If your annual exemptions are available, tax is due on £8,285 each. As you say, there will be costs of acquisition and sale, and there may be qualifying improvements. It is possible that some of your periods of absence may qualify. See:
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2021

If Ramsay applies, your gain is £41,170 less £12,300 annual exemption = £28,870.

My personal view is that HMRC will struggle to apply Ramsay in a case where the property is legally and beneficially divided between the two of you before any purchaser is identified, and it would also be helpful if all the documentation shows that you both as joint owners are involved in the decision to sell, as if you were two unconnected third parties (including hiring lawyers and estate agents). Finally, it would be unhelpful if all the proceeds were paid to a bank account in your sole name.

how_do_i?

Jeremy535897 said:

You misunderstand the impact of the Ramsay ruling. Either the transaction is one where you and your wife each sell half the property (no Ramsay), or it is one where you sell all the property and are obliged to give your wife half the proceeds (in other words the gift to your wife is ignored in calculating the gain and the tax due).

Using your 0.54 figure as the exempt part, the gross gain is £105,000 - £15,500 = £89,500, less main residence relief £48,330 leaves £41,170 taxable subject to annual exemptions. If you give half to your wife before sale, the gain is still £41,170, but you are each treated as making a gain of £20,585. If your annual exemptions are available, tax is due on £8,285 each. As you say, there will be costs of acquisition and sale, and there may be qualifying improvements. It is possible that some of your periods of absence may qualify. See:
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2021

If Ramsay applies, your gain is £41,170 less £12,300 annual exemption = £28,870.

My personal view is that HMRC will struggle to apply Ramsay in a case where the property is legally and beneficially divided between the two of you before any purchaser is identified, and it would also be helpful if all the documentation shows that you both as joint owners are involved in the decision to sell, as if you were two unconnected third parties (including hiring lawyers and estate agents). Finally, it would be unhelpful if all the proceeds were paid to a bank account in your sole name.

Thanks for taking the time to explain all this to me Jeremy.  It is very much appreciated.

Given the information and my understanding the best way to protect myself from capital gains may be the following:

do not sell at this time.
Transfer 100% ownership to my wife as a gift changing with land registry etc.. (Zero CGT as gift to spouse).
She can then sell the property in say..... 12 months time..... which should not be considered recent? and providing the increase in value does not exceed her CGT allowance there will be no CGT to pay.
She would be the seller and beneficiary. Everything would be in her name.

is this correct?  If so this seems the best scenario to avoid CGT and avoid doing anything that could be seen as dodgy?

TIA

Jeremy535897

No. If you give the whole property to your wife, and she sells it in a year's time, she will make a gain of £41,170 instead of you.

[Deleted User]

how_do_i? said:

Jeremy535897 said:

You misunderstand the impact of the Ramsay ruling. Either the transaction is one where you and your wife each sell half the property (no Ramsay), or it is one where you sell all the property and are obliged to give your wife half the proceeds (in other words the gift to your wife is ignored in calculating the gain and the tax due).

Using your 0.54 figure as the exempt part, the gross gain is £105,000 - £15,500 = £89,500, less main residence relief £48,330 leaves £41,170 taxable subject to annual exemptions. If you give half to your wife before sale, the gain is still £41,170, but you are each treated as making a gain of £20,585. If your annual exemptions are available, tax is due on £8,285 each. As you say, there will be costs of acquisition and sale, and there may be qualifying improvements. It is possible that some of your periods of absence may qualify. See:
https://www.gov.uk/government/publications/private-residence-relief-hs283-self-assessment-helpsheet/hs283-private-residence-relief-2021

If Ramsay applies, your gain is £41,170 less £12,300 annual exemption = £28,870.

My personal view is that HMRC will struggle to apply Ramsay in a case where the property is legally and beneficially divided between the two of you before any purchaser is identified, and it would also be helpful if all the documentation shows that you both as joint owners are involved in the decision to sell, as if you were two unconnected third parties (including hiring lawyers and estate agents). Finally, it would be unhelpful if all the proceeds were paid to a bank account in your sole name.

Thanks for taking the time to explain all this to me Jeremy.  It is very much appreciated.

Given the information and my understanding the best way to protect myself from capital gains may be the following:

do not sell at this time.
Transfer 100% ownership to my wife as a gift changing with land registry etc.. (Zero CGT as gift to spouse).
She can then sell the property in say..... 12 months time..... which should not be considered recent? and providing the increase in value does not exceed her CGT allowance there will be no CGT to pay.
She would be the seller and beneficiary. Everything would be in her name.

is this correct?  If so this seems the best scenario to avoid CGT and avoid doing anything that could be seen as dodgy?

TIA

Property in your name - Your Purchase cost £15.5k. Your Period of ownership 37 years. 

Property transferred to wife: Her Purchase cost deemed - £15.5k. Her period of ownership deemed 37 years. 

how_do_i?

I see.....

This is the piece of information i missed on the .gov guidelines

"Their gain will be calculated on the difference in value between when you first owned the asset and when they disposed of it."

Thanks for stopping me making rather large error!

Taxes... if they don't get from one place they get it from somewhere else!

The upshot is the best approach is to use my wife's allowance as well as my own if I can present this in a legitimate way such as you outlined as a possibility.

Thanks once again.