Capital Gains Tax - Deed of Trust

Leo2014

Hi

Hoping someone can point me in the right direction?

My father passed away in 2012 and left a flat to my sister and I valued at £150,000 by a surveyor for inheritance tax purposes. Ownership is split 50/50 and there is no outstanding mortgage or loan on the property.

We decided to sell the flat in the middle of 2021 and it was valued at £280,000. In August 2021, a solicitor prepared a Deed of Trust to minimise Capital Gains tax so I could transfer 50% of my 50% share in the property to my wife. The solicitor said I did not have to do anything with the deed re HMRC or Land Registry. I am a higher rate tax payer and my wife is a low rate taxpayer.

The sale of the property is about to be completed (April 2022). I have subsequently read that we should have submitted a form 17 (declaration of income: required to ensure that property income can be reallocated) in August 2021 to HMRC.

For the past 10 years, I have completed the self-assessment tax return based on my 50% ownership.

Given the above, I don’t think we have gained anything by completing the Deed as I gifted 50% of the property to my wife last summer and it hasn’t gone up in value since the sale price was agreed.

I am guessing that as my wife has never had any entries on her self-assessment for property income, that HMRC would take a dim view on splitting the sale proceeds 50/50?

Could someone advise what I could/should do to minimise CGT please?

I hope this makes sense – but I must admit I am confused!

Many thanks for your help

Jeremy535897

If you transferred half your interest to your wife in August 2021, half the gain is hers (assuming it was done properly and the sale was not already arranged, although there will be people on here who will say the mere decision to sell the flat puts this planning at risk). A Form 17 is irrelevant as you and your wife own that share 50:50 (it would only be relevant if you had split the share unequally). Your wife should declare half the net income from August 2021. I assume you have not filed the 2021/22 tax returns yet?

You will each pay capital gains tax based on one quarter of the total sale price less one quarter of the value for inheritance tax purposes, less any available capital gains tax exemption (£12,300 each less other gains). Remember to complete the online return (both of you) and pay the tax within 60 days of completion:
https://www.gov.uk/capital-gains-tax/report-and-pay-capital-gains-tax

Leo2014

Thanks Jeremy,

I have done the calculations for the 2021/22 self assessments but haven't submitted yet. I will split them 50/50 from August 2021.

The sale was not arranged until November 2021.

The inheritance tax element of the £150,000 was paid as part of the inheritance tax on the estate in 2013, so I am assuming we are only liable for 50% of the £130,000 gain minus selling fees?

So, am I right in thinking that there is not an issue that the deed was only done last year?

Cheers 

  

Jeremy535897

It would be an issue if the deed was done several years ago, as then you would have declared half the rental income on the wrong tax return.

As I said, there are several posters on this board that believe that the existence of a mere intention to sell a property at the time when it is split between husband and wife can negate the benefit of the planning. My personal opinion is that this is too cautious, but I would have recommended a transfer much earlier than two months before the sale was arranged (and it would have reduced income tax on half the rent for longer). You should factor in the possibility of HMRC seeking to argue that the planning is ineffective, and take advice on the correct disclosure on your tax returns.