Tax Implication of Rental Property Change Of Ownership

Stringybob3

Me and the wife currently have a share of 4 houses with a friend. We have mortgages on all 4 properties; two are jointly in my name and his and the other two in my wifes name and his. In a couple of years the mortgages on all 4 houses will be paid off and we would ideally like to 'split' the houses so that we have full ownership of two and our friend takes his two. They are all roughly the same value, so no money would exchange between us; would this change of ownership of 'X + Y' to just 'X' trigger a requirement for capital gains tax? 

More_complicated_than_that

Yes, it would trigger a disposal for capital gains tax purposes as you are disposing on an interest in parts of two properties.  The proceeds would be treated as the market value of the bits your are disposing of.

There is an exception to this if immediately after the jiggery-pokery, one of those properties becomes your/your wife's only or main residence and another becomes your friends only or main residence.  But this is quite unusual.

Stringybob3

Thanks for the response. I thought that might be the case, we will just leave it as it is then!

Jeremy535897

More_complicated_than_that said:

Yes, it would trigger a disposal for capital gains tax purposes as you are disposing on an interest in parts of two properties.  The proceeds would be treated as the market value of the bits your are disposing of.

There is an exception to this if immediately after the jiggery-pokery, one of those properties becomes your/your wife's only or main residence and another becomes your friends only or main residence.  But this is quite unusual.

I thought sections 248A to C TCGA 1992 applied except where a main residence is involved?
See also https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg73000

This needs checking as, if all the conditions are met, there could be no capital gains tax, depending on whether there is some sort of balancing payment if the values are unequal.

More_complicated_than_that

Jeremy535897 said:

More_complicated_than_that said:

Yes, it would trigger a disposal for capital gains tax purposes as you are disposing on an interest in parts of two properties.  The proceeds would be treated as the market value of the bits your are disposing of.

There is an exception to this if immediately after the jiggery-pokery, one of those properties becomes your/your wife's only or main residence and another becomes your friends only or main residence.  But this is quite unusual.

I thought sections 248A to C TCGA 1992 applied except where a main residence is involved?
See also https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg73000

This needs checking as, if all the conditions are met, there could be no capital gains tax, depending on whether there is some sort of balancing payment if the values are unequal.

I think it is s248E

Bookworm105

Stringybob3 said:

two are jointly in my name and his and the other two in my wifes name and his. 

bear in mind that in the context of exchanges of interest in land a husband and wife are treated as a single owner, so in your case "you" own 50% of all 4 houses (as does friend) 
 
"Spouses or civil partners who are living together are treated as a single landowner or a single co-owner for the purposes of the relief."

Jeremy535897

More_complicated_than_that said:

Jeremy535897 said:

More_complicated_than_that said:

Yes, it would trigger a disposal for capital gains tax purposes as you are disposing on an interest in parts of two properties.  The proceeds would be treated as the market value of the bits your are disposing of.

There is an exception to this if immediately after the jiggery-pokery, one of those properties becomes your/your wife's only or main residence and another becomes your friends only or main residence.  But this is quite unusual.

I thought sections 248A to C TCGA 1992 applied except where a main residence is involved?
See also https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg73000

This needs checking as, if all the conditions are met, there could be no capital gains tax, depending on whether there is some sort of balancing payment if the values are unequal.

I think it is s248E

Section 248E does cover main residences, but do you agree sections 248A to C could be in point here?

More_complicated_than_that

Jeremy535897 said:

More_complicated_than_that said:

Jeremy535897 said:

More_complicated_than_that said:

Yes, it would trigger a disposal for capital gains tax purposes as you are disposing on an interest in parts of two properties.  The proceeds would be treated as the market value of the bits your are disposing of.

There is an exception to this if immediately after the jiggery-pokery, one of those properties becomes your/your wife's only or main residence and another becomes your friends only or main residence.  But this is quite unusual.

I thought sections 248A to C TCGA 1992 applied except where a main residence is involved?
See also https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg73000

This needs checking as, if all the conditions are met, there could be no capital gains tax, depending on whether there is some sort of balancing payment if the values are unequal.

I think it is s248E

Section 248E does cover main residences, but do you agree sections 248A to C could be in point here?

I've not had to read them properly before.  Skimming s248C, it looks like the mischief being prevented is to stop the deferral of tax by getting a tax-free exchange under s248A and then getting a PPR tax-free disposal.  So the tax-free exchange rules would also seem to be in point where the new land is not used as a PPR straightaway (or in the next six years).  If that's right (and all the other conditions are met) that suggests that relief may be available under s248A or s248C.  But this is just a quick skim and I have probably missed a lot. 

Jeremy535897

To OP, I think the situation may be better than you feared, but you should read the link to the cgt manual I posted earlier. I have never experienced this legislation in practice.

Stringybob3

Thanks for the replies, I will have a look at that