Minimise CGT on property by transferring to spouse or more hassle than it's worth?

TRBob

I am considering selling a rental property that is solely in my name, if I transfer the ownership so that it is jointly owned by my wife and I then we can offset both of our CGT allowances of £3000.

My (very good) tenants are looking for somewhere with more space and I don't want to re-let and roll the dice, there is no major rush to sell, but I don't want to be stuck with an empty property for a few months.

I have had a few quotes and it will be £500 - £700 for the transfer and take 6 to 8 weeks. That's even before the usual few months of the sale process, assuming that someone wants to buy it relatively soon.

One of the solicitor's that I contacted said that the transfer may impact a buyers mortgage application as some lenders insist that the sellers have owned the property for more 6 months before they will lend.

Also there may be scope for it to be flagged by HMRC if the transfer is deemed to be too close to the sale (Ramsay principle).

So, I welcome the views of people with more experience of this situation please.

itsthelittlethings

I thought you would pay CGT when you transfer anyway?

El_Torro

itsthelittlethings said:

I thought you would pay CGT when you transfer anyway?

This was my first thought, though a quick search tells me that since they are married there is no CGT to pay.

Even if there is no Capital Gains Tax on the transfer I'm not sure you're going to save all that much. A £3,000 Capital Gains allowance means you are saving between £540 and £720 in tax, depending on whether you are basic rate tax payer or a higher rate tax payer.

There may be more of a gain if your wife is a basic rate tax payer and you are not, though I don't see a huge benefit to you either way.

silvercar

One of the solicitor's that I contacted said that the transfer may impact a buyers mortgage application as some lenders insist that the sellers have owned the property for more 6 months before they will lend.

My son recently bought a property where they had just done a similar transfer. There reasoning was that she already owned another property, so they needed to transfer the property he was selling into joint names to avoid paying extra SDLT on their new purchase.

My son’s solicitor queried this with the seller’s solicitor who said the change was made to ensure legal ownership reflected the actual ownership, which my son’s solicitor accepted. either the mortgage lender wasn’t concerned by this or the solicitor didn’t feel it needed to be reported,  but either way it didn’t delay the purchase.

TRBob

El_Torro said:

itsthelittlethings said:

I thought you would pay CGT when you transfer anyway?

This was my first thought, though a quick search tells me that since they are married there is no CGT to pay.

Even if there is no Capital Gains Tax on the transfer I'm not sure you're going to save all that much. A £3,000 Capital Gains allowance means you are saving between £540 and £720 in tax, depending on whether you are basic rate tax payer or a higher rate tax payer.

There may be more of a gain if your wife is a basic rate tax payer and you are not, though I don't see a huge benefit to you either way.

Correct you don't pay CGT on the transfer.

Thank you, yes it is not worth it, the fees for the transfer outweigh the gain.

Jeremy535897

When the exemption was £12,300, it was worth it.
The simplest way to do it is a declaration of trust, that doesn't need registering at the Land Registry, and should be irrelevant to the mortgage company.
In my view it is hard to see Ramsay being invoked for such a transaction, but I would do it before any contact with estate agents or solicitors, and ensure that some rent is received by the transferee spouse.

poseidon1

Jeremy535897 said:

When the exemption was £12,300, it was worth it.
The simplest way to do it is a declaration of trust, that doesn't need registering at the Land Registry, and should be irrelevant to the mortgage company.
In my view it is hard to see Ramsay being invoked for such a transaction, but I would do it before any contact with estate agents or solicitors, and ensure that some rent is received by the transferee spouse.

I am not sure a declaration of trust is necessarily a simple or even cost free option to achieve the OPs objectives. See below an extensive blog on the subject - 

https://www.bishopslaw.co.uk/declarations-of-trust-solicitor/

Specifically, where the property is mortgaged the lender may well require a subordination agreement be signed by the new beneficial owner to be clear that their newly created beneficial rights  (under the trust ) are subject to the mortgage company's overriding claims. I don't think it is correct to say such trust arrangements are  irrelevant to a lender, even where the primary liabilty remains with the original sole legal owner.

Although templates for such trusts exsist on the internet with a degree of guidance,  I believe it would be unwise to DIY preparation and execution of such without solicitor advice especially where there is a mortgage ( need to ensure such a trust does not breach the mortgage Ts & Cs).

As you say not really worth the time cost and  effort,  if CGT mitigation is the primary objective.

Long term income tax savings must be the main justification, although even there I would be a little wary of the additional future tax compliance costs, given the  rollout of the Make Tax Digital initiative for landlords.

Jeremy535897

A declaration of trust should always be done by a solicitor.
The mortgage issue in this case is not that the seller has a mortgage that would need transferring. There is no suggestion that they do. The issue is that the buyer's mortgage company doesn't like to lend where legal ownership of the property they are acquiring has changed within the last six months.