Do I have a disposal for CGT or stamp duty purposes?

Bluebirdnick

Hello all - tax advice needed please!

8 years ago, I bought two student houses with a friend. Currently, both are owned equally by each of us. I would like to sell my interest in the houses, and my friend does not. Therefore, we are going to transfer house 1 into my name, and the house 2 into my friend's name.

Will I have to pay stamp duty on acquiring 50% of house 1? It is worth approx. £180,000, so I will be acquiring approximately £90k.

Similarly, will I have a taxable gain on the disposal of 50% of house 2?

Does anybody have experience of this? Any thoughts would be greatly appreciated!

Thanks

Nick

Blowsy

My gut tells me that you'd certainly have a disposal for CGT purposes on house 2 as it's not your primary residence but I'm less sure about the SDLT on house 1.

I'd suggest you speak to a financial advisor and/or accountant to be sure.

Murdina

In principle, any disposal of an interest in land is liable to CGT - here the consideration for the disposal is the half share of the other property. Thus also for stamp duty land tax, in principle a liability arises.
However, from memory there is some sort of relief for exchange of interests for both taxes. You will need to get a solicitor involved to get the conveyancing right so they should be able to advise on this aspect also.
Try reading http://www.hmrc.gov.uk/manuals/CG1manual/CG13090.htm onwards and also look for what is called an extra statutory concession, because I think there is one. But I think this is a situation where professional advice would be sensible, to avoid falling into unexpected tax traps when you are not actually getting any cash to pay the tax.

jimmo

Haven’t got a clue about Stamp Duty but here is a link to the Extra Statutory Concession (ESC) Murdina was referring to.
http://www.hmrc.gov.uk/manuals/cg4manual/CG73000.htm
In its simplest form, the ESC effectively postpones the Capital Gain you realise on disposing of your half share of house 2 until you dispose of house 1.
If you sell house 1 in this tax year the ESC will not really help you because all the gains are chargeable for this year.
If you exchange interests this tax year but sell house 1 next tax year the ESC is more likely to work against you.
Without the ESC you will make one disposal in 2007/08 and another in 2008/09 and will be able to claim the annual allowance for each year.
With the ESC you will make one disposal in 2008/09 and you will lose the benefit of the annual allowance for 2007/08.
As your friend appears to intend to continue letting he seems more likely to benefit from the ESC because he will be able to postpone his gain on exchange of interests until he sells house 2.
However, it could actually be in his interests to crystallize a chargeable gain in 2007/08 to utilise his annual allowance.
If you two are to remain friends you need professional advice to analyse the optimum solution for both of your personal circumstances.

Bluebirdnick

Thanks for the advice; the HMRC links make interesting reading (well, they do when one's own money is at stake!).

silvercar

If your acquisition of half the house amounts to less than the SDLT threshold of 125k, there won't be any SDLT to pay. So for a house valued at under 250k, half is under the 125k threshold.