SPLITTING OF ASSET BETWEEN SPOUSES

MidasInReverse

I am a joint owner with both my sisters of a residential property that has been sold. One of my sisters told our accountant that she had transferred half of her share to her husband prior to the sale and the accountant opened a joint UK Property A/c for her and her husband to claim a second Annual Exemption Amount (AEA) set @ £3K for the current tax year. But this sister has told us that her husband has never been an owner.

There has been no update of the ownership details to the Land Registry records and she never got a Deed Of Gift for him. She won't have any documentary evidence that she transferred half of her share to her husband.

When we queried this with our accountant she said that what my sister and her husband have done "is allowed". I know it's allowed but if he has never been an owner can they still claim both AEAs?

Perhaps they haven't saved that much as the total CGT bill is split 3 ways, but another AEA deducted from her share will be a higher proportion of her CGT bill than for a sole seller of a residential property.

Hope someone can advise on the ownership requirement question.

JGB1955

I'm (genuinely) confused - why does it matter to you?

P.S. to add - AIUI, updates to the Land Registry records are currently taking 6 months+.

MidasInReverse

Why does it matter to me? This may sound strange, but I do not like tax evasion. 

It could have been done in a lawful way rather than by lying to the accountant.

Btw there's been no attempt to update the Land Registry records so the length of the current delays are irrelevant.

NorthYorkie

There are two types of ownership under English land law; 'Legal ownership', and 'Beneficial ownership'. The legal owner is the person in whose name the property is registered etc. ', whilst the beneficial owner is the person for whose benefit the property is held. In most cases these are the same person. However a legal owner might hold the property for the benefit of another, the beneficial owner.

Capital Gains Tax is only concerned with changes in beneficial ownership, so even if your sister does have any documentation to show that she had transferred part of her share to her husband (which you say she hasn't), this would only relate to legal ownership; it does not of itself mean that she has transferred any beneficial ownership to him. If the Revenue were to open an enquiry into this matter, I would expect them to seek to establish;
a) the true motive behind the alleged gift,
b) the date of that gift
c) the date of the unconditional contract for the sale
d) the names of the parties shown on the contract, and 
e) to whom the proceeds of the sale were paid

Some may feel the Revenue will not be bothered about the potential loss of tax since the Annual Exemption was reduced to a mere £3,000. However this Government needs all the tax (and penalties) it can get!

I agree that it is not your problem and there is no statutory obligation on you to report suspected tax evasion by another. Whilst the thought of it may stick in your throat, you may think it best, for family unity to let the matter drop,

MidasInReverse

Thank you. A factual and informative reply. 

I agree with you that this Government needs all the tax (and penalties) it can get and that the amount saved by these shenanigans is probably low.

poseidon1

MidasInReverse said:

Thank you. A factual and informative reply. 

I agree with you that this Government needs all the tax (and penalties) it can get and that the amount saved by these shenanigans is probably low.

Either 18% or 24% of £3,000 so a tax saving of £720 at most.

Compared to the CGT exemption that stood at £12,300 as recently as 2022/23, the present exemption has been rendered pretty much meaningless as a cost effective tax mitigation mechanism for most people.

I would suggest at £3,000, there is little incentive HMRC expending much resources to police its compliance.