Transferring property to and from daughter for CGT/SDLT?

OrangeFrog4321

Hi, 20 years ago my wife and I moved to a new property (B) owning 50% each, and didn't sell or rent out the previous one (A) which I wholly owned. 10 years ago, my daughter moved into A. I gave 50% ownership of A to daughter and 25% to wife (to make the ownership 25/25/50) to save on capital gains (as daughter would be living there as a primary property, so only our half of A would be liable for CGT). The intention was for us to give her the remainder of the property in the next tax year to use more CGT allowance, but that never happened, so it remained 25/25/50.

However, daughter bought her own property (C) nearly 3 years ago, and had to pay extra stamp duty for it being her second property (as well as not being classed as a first time buyer, but don't think there's anything we can do about that now). That started a three-year timer she has to dispose of her half of A to get the extra stamp duty on C refunded. We're not sure what options we have. The potential stamp duty refund is a little over half of the potential CGT saved over the 10 year period, but both are significant.

- If daughter transfers her 50% stake in A to my wife (who has now been living in A with my sons for a few years - we've split), will that get the stamp duty refunded on C, and will it cost us extra CGT on A (will it appear to HMRC that we've given daughter property A to 'hold' for 10 years to avoid CGT for that 10 years, with it going from myself to daughter then back to wife 10 years later - even though daughter legitimately lived there for that period)?

- If daughter transfers her 50% stake in A to her younger brother, he will lose his first time buyer status (worth around £5000 in stamp duty), but will that save both the stamp duty and CGT? (And can he later transfer back to his mum to end the cycle when he eventually buys his own property?)

According to the Gov page 'Higher rates of Stamp Duty Land Tax' gifting is allowed for the stamp duty refund - doesn't have to be a sale. Though not sure whether gifting 50% to family member is ok.

Would really appreciate any advice if anyone knows the rules here please - it's gotten a bit complicated! And I can't find much detail on exactly how the rules work. Thanks

Keep_pedalling

If your daughter transfers her share to your wife then the any CGT liability she may have will be subject to primary residence relief so it will very low and nothing. There is no purpose in her brother being involved in this. 

This other consideration here is IHT, assuming you are planning on divorcing then each of your estates will have £500k of exemptions so this gift to your wife could take her over that. If you plane to remain married but live separately then between you you can only have one primary residence so it could impact the residential NRB of one of you. 

Bookworm225

please note it is important to differentiate between "we" as a married couple and the individual owners when discussing your scenarios, you have mentioned "we" saved CGT in at least one incorrect usage

Property A ceased to be the marital main home 20 years ago
- 10 years after the cessation daughter was gifted 50% ownership. Did you declare CGT at point in time on the 50% given to daughter at that point?  10 years of liability had arisen on property by then so you had a definitive liability,  was the gain on 10 years of 50% of the property really contained within only your CGT allowance?

- 10 years after the cessation wife was gifted 25%. That would be on the no gain no basis so you would not have to pay CGT at the point on that 25%. Wife therefore now owns 25% but as the transfer took place before April 2020 and crucially the married couple was no longer living in the property as main home at date of transfer, wife does not inherit PPR for the years you lived there so she gets no relief on that. The transfer to wife was a mistake that has cost you (singular) lost PRR. 
CG64925 - Private residence relief: ownership period: spouses or civil partners and legatees - HMRC internal manual - GOV.UK

when did the marriage fail and you "split"? 
Are you now legally divorced? If not, is there a date where you can evidence that the separation took place in circumstances likely to be permanent? Have there been any financial agreements documented to date regarding the split?
ex wife is now living in A as her main home so she gets PRR on it from the later of a) date of divorce or b) date of perm separation or c) date she started living there. (But ex wife may now have liability on ex marital home property B as it it appears she remains co-owner of that)
CG65356 - Private residence relief: separation, divorce or dissolution of civil partnership: spouse or civil partner transferring interest - HMRC internal manual - GOV.UK

CCM15080 - Undisclosed Partners: Stability of Relationship - HMRC internal manual - GOV.UK

Daughter now liable for nearly 3 years of CGT on Property A out of her 13 years (to date) ownership of 50% of it 
As she no longer lives there, "disposal" of that 50% by means of gift (transfer) to ex-wife would meet the SDLT requirement of replacing a home she lived in within the previous 3 years of her purchase of a replacement main home. Do the maths to compare daughter's CGT liability v her SDLT refund, Without figures we cannot advise which works best 

Is there an o/s mortgage on property A? If yes, then as mother and daughter are not married to each other then for SDLT purposes mother is classed as a purchaser and might have to pay SDLT herself if any chargeable consideration is involved in that transfer. 
Stamp Duty Land Tax: transfer ownership of land or property - GOV.UK

Although between CGT "connected persons" (mother & daughter), mother would not acquire daughter's PRR history (only available on spousal transfers). For CGT purposes mother would acquire any share given at its then market value, which would be the value daughter must use in her own CGT calculation for her liability arising from the non residence period.

Daughter transferring to brother rather than mother does not improve daughter's situation and, as you comment, leaves brother losing FTB status - somewhat counter productive overall?


Conclusion
I do not think your plans have taken account of the all the facts, particularly the marriage split.

OrangeFrog4321

Thanks very much for the detailed response @Bookworm225 . Some clarifications:

- Yes, we paid CGT at the point of transfer 10 years ago.
- "The transfer to wife was a mistake that has cost you (singular) lost PRR." I am trying to get my head around this one. Did that transfer somehow rewrite history - is CGT not owed based on who, in the years of ownership, owned it and whether it was their primary residence at that point in time?
- The separation is completely unofficial, so house B is still the primary residence for CGT.
- The stamp duty refund far exceeds 3 years worth of CGT. However, even if it didn't, is that CGT not still going to be owed regardless of when daughter disposes of it - so the CGT that began accruing at the point she bought her own property is unavoidable?
- No o/s mortgage on A or B

Thanks again for your help.