Reducing capital gains tax when transferring share of a property

Kate...

Hi.

As a family we bought a property together which I am currently living in. It was bought for £70000 but is now worth around £150000. We have 25% shares each in the property.  My dad wants to gift his share to me but are aware this will cause him to incur capital gains tax.

My question is:

Can you avoid capital gains tax by gradually transferring the property (below the tax allowance) over several years? For example: transfer 10% first year, 10% 2nd year and then 5% the 3rd year. 

diystarter7

Hi OP

Me and Mrs DiY gifted a rental to one of our kids. We did all of the paperwork inc leaseholders certs etc and we only paid a solictor a small amoutn the witness all three signatures. LR, our previous solictors were very helpful FoC as were the management agents of our property. We saved at least 1k I think. 

We paid a lot of tax on it but only later though about what you have said as we could have easily gifted within weeks of 2 financial years but could not be bothered as we are getting older and wanted this over and done with. I felt like I threw away many thousnads of pounds so to put my mind at rset I read up on it can't recall where.

The tax people could pull you up if they thought it was intentional ie avoiding cgt.  I did not investigate further than that and though, one can easily change their minds, eG, fift 50% etc one time and anyone can change their mind and gidt the other lot as a whole or in parts and IMHO HMRC would find it difficult to prove. However, if you did this on a regular basis I guess they would pull you hp

NB: As I'm not 100% certain please await further posts or check with an accountant.  (unless dad is doing the paperwork himself there would be solictors fees etc - we had no loans etc so no stamp to pay by our kid)



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Jeremy535897

Did your father ever live in the property as his main residence?

Presumably there is no mortgage?

If main residence relief does not apply, father has a gain of about £150,000 - £70,000 = £80,000/4 = £20,000 minus say 10% discount as he owns just a share in a jointly owned property, so say £16,250. (This is 150,000 x 0.9 = £135,000/4 = £33,750 less £70,000/4 = £17,500.) He could give you say 20% with a gain of £13,000 this tax year, and 5% next year, and although the capital gains tax allowance drops to £6,000 for 2023/24, as the gain would only be £3,250, there would be no tax, assuming father had no other gains.

There may be acquisition costs and improvements that reduce the gain, but the value of £150,000 could be disputed by HMRC. There probably isn't any downside, except costs, in splitting the gift over two years, because HMRC cannot realistically run an argument that doing this counts as tax avoidance (unless an actual transfer of 25% was dressed up as two separate transfers), but with the capital gains tax exemption falling to £6,000, the most that can be saved is £6,000 at 28% (and that could be less depending on father's tax rates, other gains and/or losses) which is £1,680, and on my example the saving is only a maximum of £3,250 at 28% = £910.

[Deleted User]

Jeremy535897 said:

Did your father ever live in the property as his main residence?

Presumably there is no mortgage?

If main residence relief does not apply, father has a gain of about £150,000 - £70,000 = £80,000/4 = £20,000 minus say 10% discount as he owns just a share in a jointly owned property, so say £16,250. (This is 150,000 x 0.9 = £135,000/4 = £33,750 less £70,000/4 = £17,500.) He could give you say 20% with a gain of £13,000 this tax year, and 5% next year, and although the capital gains tax allowance drops to £6,000 for 2023/24, as the gain would only be £3,250, there would be no tax, assuming father had no other gains.

There may be acquisition costs and improvements that reduce the gain, but the value of £150,000 could be disputed by HMRC. There probably isn't any downside, except costs, in splitting the gift over two years, because HMRC cannot realistically run an argument that doing this counts as tax avoidance (unless an actual transfer of 25% was dressed up as two separate transfers), but with the capital gains tax exemption falling to £6,000, the most that can be saved is £6,000 at 28% (and that could be less depending on father's tax rates, other gains and/or losses) which is £1,680, and on my example the saving is only a maximum of £3,250 at 28% = £910.

Yes and if ‘as a family we bought the property together’ does mean that Dad lived there at some point, the saving is more as you say, perhaps wiping out all gains. First law of taxation - don’t let the tax tail wag the dog!