Property transfer between spouse.

at84

My wife and I are in the process of buying a new house, and we currently own a property together as joint tenants. The mortgage on our current house is £200,000, with a market value of £700,000.

Aside from selling, we are considering another option: keeping our existing property and converting it into a Buy-to-Let (BTL). I am a higher-rate taxpayer, while my wife is a basic rate taxpayer, which means we could secure a better BTL mortgage if the property is solely in her name, and also benefit from tax advantages on the rental income. For these reasons, I am thinking of transferring my ownership to her.

Would she need to pay any stamp duty? Will there be any disadvantage when she decides to sell the property in the future as sole owner vs two? If we want to proceed, what is the procedure? Should we talk to a tax advisor or solicitor for the transfer?

PS: I am aware that we will have to pay a higher Stamp Duty Land Tax (SDLT) for the second property and understand risks with BTL (vacant periods, bad tenant and law changes). 

Bookworm105

There is no SDLT exemption on transfer for a married couple so she would incur SDLT on the value the amount of mortgage she "takes over". The order in which you deal with the two properties will also be relevant

Transfer to her before purchase of new home.
She would face SDLT on 100K  (half the o/s mortgage given, presumed, joint mortgage liability)

Purchase of main home will then be subject to additional rate SDLT as you have not "replaced" (ie sold) your previous main home and you are married so the fact she is sole owner of another property triggers the additional rate as a married couple are treated as what one owns so does the other (even if legally they don't). 

Future sale as sole owner would be a bad idea.
Nothing stopping the transfer back to joint ownership of rental property before sale. BUT do so before putting it up for sale otherwise that falls foul of settlements legislation - actions taken purely to manipulate tax.
Ideal scenario would be revert to joint ownership whilst still in receipt of rent, that way you'll pay some rental profit tax at income tax high rate, and thus cannot be accused of transferring it purely to obtain a CGT advantage.

very important for CGT to revert to join ownership before selling because as it was once the main home of both you then you want to make sure you each get to claim private residence relief on your respective shares. Depending on the values and timeline that could be worth £ thousands of reduction in the size of the taxable gain for CGT.
Transfer between spouse do not trigger CGT on the transfer (but if there is still an o/s mortgage than the normal SDLT rules and thresholds would apply). For CGT on transfer to her she acquires your share at its original purchase cost and when transferring back you get it back at the original purchase cost you paid when your bought the place. Crucially, on transfer back and partly because your yourself previously lived there you "inherit" the full previous private residence relief on your re-acquired share, so a win win outcome.   

Keep_pedalling

Do you really want to tie up so much of your wealth in property and take on a lot more debt? It will certainly make life difficult when you start looking at IHT planning. 

Albermarle

There is a general trend for small landlords to be moving away from BTL. 
Tax and legislation changes, plus problems with tenants if you are unlucky, make it less attractive than it used to be.
There are plenty of threads on here relating to issues around renting ( by landlords and tenants)
This was the latest one.
Help Please — MoneySavingExpert Forum

at84

Thanks all for your replies. Bookworm105 - good points re tax and private residence relief.
Keep_pedalling , Albermarle - In ideal world, I dont want to keep my current house (too much exposure to property and BTL overhead) if I could sell it with reasonable price.